Are smart retail borrowers defeasing now?

Borrowers sprinted to defease their retail properties in the early months of 2015.

graphicAbout 300 percent more borrowers defeased loans for retail properties in the first quarter this year compared to 2014, according to a Defease with Ease® analysis of Bloomberg data. The trend signals the Wall of Maturities, along with fear of rising rates, is prompting a greater sense of urgency to consider a sale or refinance of their CMBS loan early. Approximately $300 billion in defeasance-eligible loans will mature between now and 2017. 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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Big sale highlights changing CRE finance sector

HWijjF7RwOPGEJ1nb4Zb_IMG_37731General Electric recently garnered attention with its decision to sell over $23 billion in commercial real estate assets and wind down its commercial finance arm. The deal illustrates major forces reshaping how U.S. companies finance and invest in commercial real estate. Prolonged low interest rates have buyers lining up to acquire commercial real estate portfolios for their attractive yields. Meanwhile, rising real estate prices have whet seller appetites, giving giant regulated conglomerates such as GE the opportunity to profitably exit. A Green Street Advisors index of commercial property shows prices 15% higher than the peak of the last cycle in 2007.
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Resurgence of the Medical Office Market

6878969523_ecc5841bd5The healthcare industry is in a transition period due to advancements in technology, physician and healthcare system acquisitions, and consolidations and alliances.

Between 2009 and 2012, the annual number of hospital mergers and acquisitions more than doubled (from 50 to 107) with a large number of for-profit systems acquiring non-profit organizations. From a real estate perspective, these acquisitions and alliances are causing significant overlap in functions and services, as well as reduced staffing and office space needs where dominant healthcare systems reside.
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Redefining the Traditional Office Space

Redefining Office Space PictureAccording to a recent article by Richard Carr of National Real Estate Investor, there is “growing preference for open spaces over traditional offices, efficiency over expansion, secondary markets over class-A buildings in primary cities and, in some markets, a new trend of preferring low-rise buildings or lower floors in high-rise buildings to higher-priced floors at the top.”
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Nationwide, Retailers are Pulling Out of Shopping Centers

11788630744_1faaf5f939According to Bloomberg, shopping centers across the country are still struggling to fill empty store fronts from retailers who went out of business years ago.

Reis, a company which has analyzed the CRE industry for over 30 years, says that over the last year, vacancies at U.S. regional malls rose from 7.9% to 8% in the fourth quarter. This is due in part to Sears Holdings Corp. store closures. Unfortunately, as more and more national retailers (i.e., RadioShack, J.C. Penny Co., Borders, etc.) close stores, the real estate recovery for neighborhood and community shopping centers will remain extremely slow.
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Apartment Investors; Millennials Turn to Suburbs

According to a recent Bloomberg article, “after years of clamoring to buy the most centrally located rental buildings in major urban centers, U.S. apartment investors are rediscovering the suburbs.”
Nationwide, purchases of apartment buildings outside the urban core climbed 8.2% last year to a value of $82.5 billion.
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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.
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Multifamily is where it’s at in 2015

Last week, members of the Commercial Defeasance team attended the RealShare conference in Miami. During the conference, over 250 CRE leaders discussed issues and trends related to the multifamily sector in the Eastern U.S.
It was clear that attendees wanted to know if a decrease in home ownership is a paradigm shift or a demographic shift. They also discussed how certain trends are benefiting the multifamily industry.

According to recent statistics, the U.S. homeownership rate fell to the lowest level in more than two decades. This has caused vacancy rates for rental homes to decrease. U.S. vacancy rates for rented homes fell to 7 percent in the fourth quarter, down from 8.2 percent a year earlier and the lowest since 1993.
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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.
“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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