Why are newer multi-family loans defeasing ahead of schedule?

14425526680_d34d3b66e6An interesting trend is developing in the multi-family CMBS space: Newer vintage loans are defeasing much earlier in their terms than older 2005- to 2007-vintage loans.

Why? Defeasance economics are turning in their favor. Let me explain. Read more

Maturing CMBS faces tough day at the office

2015OfficeAbout 40% of office properties approaching the Wall of Maturities could face difficult conditions when their loans mature.

A Fairview Real Estate Solutions analysis of all 10-year commercial mortgage backed securities maturing from 2015 to 2017 shows less than 60 percent of all office CMBS is expected to payoff at par value. The remaining loans involve office properties that could be worth less than the original loan value and require additional capital. Others are expected to be in worse condition, having already been classified severely delinquent or in default. Read more

Peering over the Wall of Maturities

3wBPUcDrR9KaduD3PvkY_DSC_0915The Wall of Maturities has arrived. Are you ready to scale it?

Hundreds of billions of dollars in commercial real estate loans will mature over the next three years as thousands of 10-year CMBS products from 2005-2007 reach full-term. Approximately $300 billion in defeasance-eligible and prepayment-eligible loans are set to mature.
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The Future of Retail

Until recently, street retail throughout the country had fallen out of favor and into disrepair. Millennials and empty nesters are moving back to the cities, and investors are once again increasing their portfolio allocation in the street retail category.
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“We’ve been in street retail for a long time, but it’s a greater focus for us now,” says Christopher Conlon of Acadia Realty Trust. “Previously, street retail made up a much smaller percentage of our portfolio, but we chose to make it a big part of our growth plan coming out of the recession.”
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Commercial Loan Originations on the Rise

According to Jamie Woodwell, VP of Commercial Real Estate Research at the Mortgage Bankers Association, “Rising property values, improving property fundamentals, lower interest rates and higher loan maturity volumes should all help boost mortgage borrowing and lending in the coming year.”
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The Mortgage Bankers Association (MBA) predicts that originations of commercial and multi-family mortgages will grow to $414 billion in 2015. This is an increase of 7% over last year.

In fact, according to the MBA’s quarterly survey of the top commercial and multi-family mortgage originations firms, there was an 11 % increase in loan originations during the fourth quarter of 2014. Multi-family and industrial properties had the most loan originations during that time period.
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How Does an Increase in Interest Rates Affect CRE?

Lately, there has been a lot of chatter about rising interest rates and their potential impact on the commercial real estate market.
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Respondents of the CNBC Fed Survey forecasted that the Federal Reserve could raise rates during the summer of 2015. This will be the first time interest rates have increased in eight years.

Will an interest rate hike come down to a simple policy change?

On December 17, the Federal Reserve met to determine whether or not they would make changes to a policy statement about keeping short term borrowing rates low for a “considerable time.” However, even a minor change to a Fed policy statement had the potential to stifle the economy’s positive momentum. Ultimately, the Federal Reserve chose its words very carefully and only replaced a reference to borrowing costs remaining low for a “considerable time” with a pledge to be “patient” on the timing of a rate increase. Federal Reserve Chairman Janet Yellen also said that policy makers are likely to hold key rates near zero for at least the first quarter of 2015.
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Two Reports Provide 2015 CRE Forecast

According to a recent report by the National Association of Realtors (NAR), “despite a slowing global economy, forward economic momentum in the United States should keep commercial real estate activity on firmer footing.”
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NAR conducts a quarterly report that evaluates the condition of the industry. The latest forecast predicts a gradual pace for commercial activity heading into 2015.

“Solid economic growth in the third quarter proved that the second quarter wasn’t an anomaly, as business spending increased, commercial construction rose and the labor market continued to make positive strides,” said Lawrence Yun, NAR chief economist. “Job growth is the catalyst to improved demand for commercial real estate leasing and new construction projects, but softening in the global economy will likely widen the trade deficit in the U.S. and could trigger some weakening in the overall economy.”
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Top 10 CRE Trends for 2015

The 36th annual “Emerging Trends in Real Estate,” co-published by PwC U.S. and the Urban Land Institute provided some insights on trends that are expected to impact commercial real estate investing in 2015.

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“Unlike previous reports and previous cycles, we are seeing sustained growth,” said Mitch Roschelle, PwC U.S. real estate advisory practice leader. “In the past several years, we reported that real estate market participants’ main fears revolved around uncertainty with the economy. Now, the trepidation in their eyes has more to do with the ability of the growing real estate markets to adapt to a series of megatrends impacting society and the global economy.”

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NYC Commercial Real Estate Values Continue to Rise

According to Moody’s Investors Service, “U.S. commercial-property prices have surpassed the peak reached seven years ago, before the financial crisis sent real estate values plunging.”

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While a number of recent industry reports confirmed that the commercial real estate market strengthened across all property types in the third quarter of 2014, apartment complexes in large cities and office buildings in central business districts delivered the best results.

In particular, dramatic increases in New York commercial real estate property values have inspired many investors to expand their portfolios or cash in their equity.

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Retail Years Away from Recovery

Several recent industry articles indicated that the demand for retail space remains weak. Many experts believe that this is due to a slow recovery in retail sales and competition from e-commerce. Even the improving labor market has yet to translate into any meaningful increase in retail sales growth.

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According to recent data, for the second consecutive quarter, the national vacancy rate for neighborhood and community shopping centers registered at 10.3%. This represents a decline of just 20 bps over the past 12 months.

In an article in nreionline.com, experts reported that regional mall vacancy remained at 7.9% for the fourth consecutive quarter with growth in the 0.4 -0.5% range. Malls began their recovery sooner than neighborhood and community centers but have stalled faster. Much of the vacancy compression has come from low-hanging fruit, as the best spaces in the best malls have already been leased. The malls that have vacant space tend to be inferior and in locations where the population is also struggling. The challenge this poses for the overall mall sub-sector is that any further meaningful vacancy reductions will need to be attributable to new tenants in these inferior malls.

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