CRE Market Conditions Stable – Defeasance on the Rise

round-glass-building-1123032-mLast week, the Federal Reserve released its report on regional economic conditions, which summarized district information from each of the Federal Reserve Banks. Based on the information contained in the report, it was clear that bank branch directors agree that the commercial real estate market is stable or improving in most districts.

The report, which is formally called the “Summary of Commentary on Current Economic Conditions by Federal Reserve District,” evaluates the regions in which Federal Reserve Banks are located. For example, the “Boston” report describes all of New England and “Chicago” pertains to most of the Midwest.

Following are the Federal Reserve’s key perceptions based on district information:

– Commercial vacancy declined in Boston, Chicago, St. Louis and Kansas City.

– In Dallas, commercial real estate has steadied or slowed since the previous report released in January.

– The apartment market remained strong in most districts.

– Apartment rental rates rose in New York, Chicago and San Francisco.

– Cleveland experienced an increased demand for multifamily housing.

– In Dallas, apartment demand remains strong.

– Commercial construction increased in most districts.

– New York, Richmond, Atlanta, St. Louis and San Francisco experienced stable to strong multifamily construction.

– Chicago has had moderate growth in commercial real estate, driven mainly by industrial buildings.

These results are particularly interesting when combined with a recent Moody’s report that found that defeasance activity has reached its highest level since 2007.

“The CMBS loan origination market is becoming increasingly competitive with many new lenders entering the market,” says Moody’s VP and Senior Credit Officer Sandra Ruffin. “This, combined with the large number of loans approaching their maturity and general improvement in CRE markets, is fueling increased defeasance.”

Moody’s national data showed that the largest portion of defeased loans were for office space. By comparison, office space accounted for the second largest portion of loans defeased by the Defease With Ease® team in 2014.

For 2015, Commercial Defeasance expects a modest increase in defeasance volume over 2014. “Historically, defeasance activity increases when property values rise, interest rates are low and loan dollars are more accessible. That was the case in 2014, and even if the current chatter about the Fed raising rates slightly comes to fruition, we expect little change in 2015,” said Jeff Lee, Director of Originations at Commercial Defeasance.

To learn more about how you can Defease With Ease® give us a call.