{"id":1004134897,"date":"2016-01-27T09:22:07","date_gmt":"2016-01-27T17:22:07","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004134897"},"modified":"2022-12-07T01:36:52","modified_gmt":"2022-12-07T09:36:52","slug":"cre-capital-markets-outlook-2016","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/cre-capital-markets-outlook-2016\/","title":{"rendered":"CRE Capital Markets Outlook 2016"},"content":{"rendered":"<p><a href=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2014\/12\/CPE_0115_finance.jpg\"><img loading=\"lazy\" decoding=\"async\" data-attachment-id=\"1004110060\" data-permalink=\"https:\/\/www.commercialsearch.com\/news\/january-issue-finance-sea-of-liquidity\/cpe_0115_finance\/\" data-orig-file=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2014\/12\/CPE_0115_finance.jpg\" data-orig-size=\"480,270\" data-comments-opened=\"1\" data-image-meta=\"{&quot;aperture&quot;:&quot;0&quot;,&quot;credit&quot;:&quot;&quot;,&quot;camera&quot;:&quot;&quot;,&quot;caption&quot;:&quot;&quot;,&quot;created_timestamp&quot;:&quot;0&quot;,&quot;copyright&quot;:&quot;&quot;,&quot;focal_length&quot;:&quot;0&quot;,&quot;iso&quot;:&quot;0&quot;,&quot;shutter_speed&quot;:&quot;0&quot;,&quot;title&quot;:&quot;&quot;}\" data-image-title=\"CPE_0115_finance\" data-image-description=\"\" data-image-caption=\"\" data-large-file=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2014\/12\/CPE_0115_finance.jpg?w=480\" class=\"alignright size-medium wp-image-1004110060\" src=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2014\/12\/CPE_0115_finance.jpg\" alt=\"CPE_0115_finance\" width=\"300\" height=\"168\" srcset=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2014\/12\/CPE_0115_finance.jpg 480w, https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2014\/12\/CPE_0115_finance.jpg?resize=300,169 300w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><\/a>By\u00a0Poonkulali Thangavelu<\/p>\n<p>Notwithstanding some notable new challenges, capital markets experts forecast a mostly favorable climate for borrowers in 2016. \u201cEconomic data suggest that CRE fundamentals will modestly continue to improve in 2016,\u201d noted Joe DeRoy, CMBS program manager for KeyBank Real Estate Capital. \u201cThat, coupled with a low-interest rate environment and ample capital, both first-mortgage and subordinate financing, should bode well for borrowers looking to refinance in 2016.\u201d And with $300 billion-plus in CMBS loans due to mature, that comes as welcome news.<\/p>\n<p>Lenders, meanwhile, are sizing up the impact of the Federal Reserve\u2019s first interest rate hike in a decade. While some lenders could benefit at the margin, their relative competitive positions are likely to remain largely unchanged. \u201cAs long as the economy expands, at the margins lenders become slightly more aggressive,\u201d said Brian Stoffers, global president of CBRE\u2019s debt and structured finance business. \u201cBut we have learned our lessons from 2005 to 2007, and we just don\u2019t see the loan-to-values going up as high, or the debt coverage ratios dipping down as low as they were in that timeframe. Overall, there is more equity going into commercial real estate ahead of the debt than there was in the last downturn.\u201d<\/p>\n<p><strong>Rule Changes<\/strong><br \/>\nAn analysis of loans originated by CBRE Capital Markets shows that banks accounted for 34 percent of lending activity during the second quarter of 2015. Life companies accounted for more than 25 percent and CMBS made up nearly 20 percent. An assortment of other sources, including REITs, debt funds and credit companies, represented the remaining 20 percent of lending volume.\u00a0One trend to watch in 2016 will be the impact of new rules on these lenders\u2019 strategies. Banks are adjusting to provisions of Basel III that require higher capital reserves for construction loans than for those tied to a stabilized property. That could put a dent in the level of risk they are willing to take on. \u201cIt is only at the margin, for the exceptional loan or the exceptional sponsor, that they will get more aggressive,\u201d Stoffers predicted.<\/p>\n<p>For their part, CMBS lenders will deal with Regulation AB, which requires more disclosure on securitizations. Dodd-Frank\u2019s new risk-retention rules could have far-reaching implications, as well. \u201cFor the industry as a whole, risk retention is going to increase the cost of capital,\u201d said DeRoy. \u201cPeople have been pretty transparent that some of those costs are going to be passed on to borrowers in the form of higher interest rates.\u201d Widening credit spreads could likewise create headwinds for permanent financing, increasing borrower costs and limiting the availability of debt, DeRoy added.<\/p>\n<p><strong>Opening Doors<\/strong><br \/>\nAs CMBS and banks pull back on aggressive practices, and life companies continue lending steadily, more debt capital could flow from other sources, such as REITs, private-equity players and unregulated debt funds. For example, the large volume of maturing loans could provide an opening for debt funds, which have been active in higher-yielding products like mezzanine loans, preferred equity and B-notes.<\/p>\n<p>Concerns linger that underwriting became considerably more aggressive during 2015, as illustrated by declining cap rates and debt yields and the roller-coaster ride of interest-only provisions. According to CBRE\u2019s analysis of loans originated through its capital markets team, interest-only loans jumped from 45.6 percent during the first quarter of 2014 to 66.1 percent during the first quarter of 2015, then dipped to 58.3 percent during the second quarter last year.<\/p>\n<p>Also of note, CMBS \u2018B\u2019-piece buyers are pushing back on loan quality. According to Noble Carpenter, president of capital markets for Cushman &amp; Wakefield\u2019s Americas region, \u201cThere has been a widening of pricing in the B-piece market, and the B-piece buyers have become a bit more aggressive in kicking out loans. It should have the impact of making underwriting standards more stringent.\u201d Even so, projections call for 2016 CMBS volume to exceed 2015\u2019s estimated total of $90 billion to $110 billion.<\/p>\n<p><strong>Nearing the Peak?<\/strong><br \/>\nLenders are also assessing the impact of the Federal Reserve\u2019s evolving policies. Rising interest rates would suggest that property values have peaked and should start declining in tandem with rising cap rates, observed Gregg Gerken, executive vice president &amp; head of U.S. commercial real estate at TD Bank. \u201cThe concern that anyone in the debt position has is that you want to have a significant margin of safety,\u201d he explained. \u201cAnd that goes away if you are financing at peak prices.\u201d<\/p>\n<p>That said, market participants aren\u2019t anticipating an uptick in cap rates that could soften property values in 2016. A series of sharp interest rate hikes would likely have exactly that effect, but most observers expect the Federal Reserve to take a measured approach to raising rates.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Willing lenders, new rules and some caveats await borrowers in 2016.<\/p>\n","protected":false},"author":1219,"featured_media":1004110060,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21780,21825,21783,21752,21742,21747,21746,21749],"tags":[],"class_list":["post-1004134897","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business-specialties","category-finance","category-investment","category-mixed-use","category-latest","category-office","category-property-types","category-retail"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v23.4 (Yoast SEO v24.6) - 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