CRE Thought Leadership

1.  Commercial Real Estate Sales and Values Surge to Records

“Investors purchased a record amount of commercial real estate in the third quarter, defying warnings that the Covid-19 pandemic would erode these property values and starve the industry of cash. Instead, purchases of apartment buildings, life-science labs, and industrial properties, which serve as e-commerce distribution centers, rocketed commercial sales to more than $193 billion in the quarter.” (WSJ – subscription required, 10/26)

What you need to know:

• Commercial sales are up 19% compared to Q3 2019, the largest quarter for commercial property sales ever recorded, according to Real Capital Analytics. Sales activity for the first nine months of the year totaled $462.1 billion, a 10% increase from the same period in 2019. This is largest amount ever for the first three quarters of any year.

• Financial institutions provided $102 billion in loans to property owners via commercial mortgage securities, the largest volume for a nine-month period since 2007.

Read the full article here

1.  Commercial Real Estate Investors Show Increased Appetite for Risk in 2021, CBRE Survey Finds

“Commercial real estate investors in the Americas are showing a clear shift in risk tolerance and a preference for secondary markets in 2021, according to the findings of CBRE’s latest Americas Investor Intentions Survey. The survey, which covers all asset types, found that investor sentiment and activity began to improve in the second half of 2020, and should continue to improve this year as widespread vaccination aids the economic recovery.” (CBRE, 3/25)

What you need to know:

• Surveyed commercial real estate investors signaled an increase in risk tolerance with 30% saying they are targeting opportunistic and distressed assets in 2021. This is a record-high level and compares with 16% in 2020.

• For the first time ever, large investors (AUM greater than $50 billion) are more interested in secondary markets than primary markets. Investors have also indicated they plan to expand the range of property types in their portfolios. 72% of respondents are actively pursuing investment in one or more real estate alternatives, like medical office or cold storage, compared to 54% in 2020.

Download the full report here.

1.  Vaccine to Trigger Q3 CRE Recovery: Report

“Most of the country’s industrial markets will be in a recovery or expansion mode this year, while only a handful of metros will see their office markets expand, according to Integra Realty Resources’ (“IRR”) Viewpoint 2021 publication. But until the reset of the economy—expected to occur at the midyear point—the firm remains cautiously optimistic about the overall state of commercial real estate.” (Commercial Property Executive, 1/11)

What you need to know:

• The pandemic forced industrial operators to focus more intently on inventory across the entire supply chain – including inventory in transit, last-mile accommodations, inventory covered by preorders, etc. The strong performance of industrial relative to other asset types during the pandemic and the expected economic growth in 2021, allowed for IRR to place 90% of industrial markets in either ‘recovery’ or ‘expansion’ growth cycles.

• The advent of the coronavirus vaccine has allowed a path for a large-scale economic recovery and CRE rebound across most property types. After the pandemic subsides, it is still largely unclear what consumer habits will look like. For instance, will shoppers return to the stores or will the mass adoption of e-commerce remain the norm?

Read the full article here.

1.  Pandemic Seen Creating Risk of Slower Commercial Real Estate Lending

“As 2020 nears its end, the pandemic is disrupting the origination and payment of commercial property loans even as borrowing rates boost interest in financing. The level of commercial and multifamily loans outstanding mounted all year as investors and owners sought to take advantage of historically low interest rates. At the same time, borrowers’ ability to repay outstanding loans shows further signs of stress.” (CoStar – Subscription Required, 12/23)

What you need to know:

• The amount of mortgage debt backed by CRE increased for the 33^rd straight quarter. Despite a significant decrease in acquisition funding, loan refinancings, particularly from government-sponsored entities, like Fannie Mae and Freddie Mac, helped raise total outstanding mortgage debt.
• The balance of delinquent commercial mortgages increased for the first time in three months in November, where delinquencies had been decreasing considerably from the double-digit-percentage levels throughout the summer. The combination of historically low interest rates and rising delinquencies coming into the new year combine for a mixed 2021 outlook.

Read the full article here.

1. Commercial/Multifamily Borrowing Falls in Q3

“The COVID-19 pandemic continues to impact new originations of commercial and multifamily mortgages. Compared to last year’s third quarter, commercial and multifamily originations were 47 percent lower, according to the Mortgage Bankers Association’s (MBA) Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations.” (Commercial Property Executive, 11/20)


What you need to know:

• Every major property type recorded a year-over-year decline, however, originations did increase 12% compared to the second quarter of 2020. According to MBA’s CREF Loan Performance Survey, commercial and multifamily mortgage performance improved in October.
• The third quarter saw a 94% year-over-year decrease in the dollar volume of loans for hotel properties, an 83% decrease for retail properties, a 58% decrease for office properties, a 31% decrease in multifamily properties, and a 23% decrease for industrial property loan originations.

Read the full article here.

1. Pricing Disconnect Weighs on Commercial Real Estate Investment Activity, CBRE Survey Finds

“The CBRE survey found that 61% of buyers are looking for discounts from pre-pandemic prices and only 9% of sellers willing to offer such discounts. Among buyers looking for discounts, nearly three-quarters were for office or retail properties. For suburban office, 95% of investors were looking for discounts, with no sellers willing to reduce their price.” (CBRE, 10/8)

What you need to know:

• Two-thirds of respondents stated they are adopting more conservative rental income assumptions than practiced in Q1 2020. Around half of those with unchanged underwriting assumptions are industrial-focused respondents.

• Cap rates for Class A properties (as of August 2020) remained relatively unchanged from rates at the end of 2019. The largest portion of metro markets reported flat cap rates, with other markets reporting nominal increases or decreases between 25-50 basis points.

Read the full article here.
Access the full survey here.

Amid the COVID-19 pandemic, almost every aspect of our lives--both work and social--changed in the blink of an eye. And companies now face a question that would have been inconceivable a year ago: do you really need an office?

Office space will forever be different after this pandemic and must adapt to meet the needs of the new reality of in-person collaboration. From changing work habits to rethinking the needs that office spaces will serve, offices will fill the gap that technology cannot in what will become a blended work-from-home dynamic. 

1.  US No Longer the Global Leader for CRE Investment

“In normal periods the U.S. is the largest, most liquid region for commercial real estate deal activity worldwide. In the second quarter, however, Europe surpassed the U.S. as a hub for investment. Trends into July are not looking favorable for the U.S.” (Real Capital Analytics, 8/31)

Discover the similarities and differences between these two commercial financing scenarios.

In the world of commercial real estate finance, many people use the terms "bridge lending" and "hard money lending" interchangeably. However, there are differences between the two types of financing and those differences can have a major impact on the way your loan is structured and how the approval process works.

1.  Lending Could Fall Almost 60% This Year, MBA Forecasts

“Bankers expect commercial real estate loan originations to drop 59% in 2020 because of the economic fallout from the coronavirus pandemic. Lenders are forecast to complete $248 billion of loans backed by income-producing properties — down from 2019's record volume of $601 billion, according to a new projection by the Mortgage Bankers Association.” (CoStar – subscription required, 7/20)