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.”
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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Demand for Health Care Properties

Since the recession, senior housing, medical-office buildings and other health-care-related properties have been outperforming most other commercial real estate categories.

Recent data from Marcus & Millichap showed that approximately $5 billion in medical-office buildings in the U.S. were sold in 2014 – compared to $4.3 billion in 2013.
Medical Office
This should not come as a surprise. As baby boomers retire, the over–65-age bracket will grow by 36 percent and that age group traditionally consumes three times the medical services of younger people. Additionally, due to the Affordable Care Act, more individuals have access to health care, which means office visits are on the rise and space is in great demand.
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Prepaying Commercial Real Estate Loans

A recent BizNow article titled “Prepaying Loans: What your Lender Doesn’t Want You to Know” explores the benefits of defeasance. Here’s what the author had to say:
When negotiating your next loan, optimize your ability to prepay quickly with the least possible penalty and procedure. We asked Ackman-Ziff managing director Marc Warren to compare the two most common early-exit strategies: Yield maintenance and defeasance.

Securitized lenders like defeasance.

A defeasance clause in your loan doc means buying treasuries in the bond market on behalf of your lender to prepay your loan. This process involves legal counsel, accounting opinions and title insurance, and could get expensive, complicated and time-consuming. Bankers could charge extra fees; bondholders find this process cleaner and easy to understand. Bonds backed by defeased loans make slightly higher profit for their originators than alternative forms of prepayment protection.
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Defease With Ease® Doubles Defeasances

In 2014, Commercial Defeasance, LLC defeased over 500 commercial real estate loans – double the number of transactions it closed in 2012. The company’s smallest transaction of the year was a $330,000 defeasance for a New York co-operative, while the largest was the defeasance of a $755,000,000 loan secured by the biggest shopping mall in America.
Cincinnati Ohio Skyline
According to a review of the “Top Defeased Loans of 2014,” Commercial Defeasance advised on nine of the largest, including the Mall of America in Minnesota, the Loews Miami Beach Hotel in Florida, and Herald Center in New York.
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Job Growth Increases Value of Office Space

According to a recent report by National Real Estate Investor, stronger than average job growth has contributed to an increase in office property valuations. In fact, based on recent Moody’s data, office assets in Central Building Districts increased 8.6% from September 2014 through November 2014.
As a whole, the value of commercial real estate has increased. However, office space was the best performing sector. As a result, many investors have chosen to make riskier investments just to acquire existing office space. This includes purchasing office properties with sizable vacancies.
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Is the CRE Industry Ripe for Disruption?

According to Forbes reporter William Robertson, “Though one of the oldest industries in the United States, commercial real estate has lagged behind other industries in terms of innovation, particularly when it comes to adopting and advancing technology. In fact, it has been argued that the commercial real estate market is in the same place that the financial services industry was 20 years ago.”
How long can an industry driven by entrepreneurs and out-of-the-box thinkers remain so far behind the technology curve?

Here are a few ways technology is being incorporated into the commercial real estate industry in 2015:
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Defease With Ease Q4 Trends

skyline-toronto-canada-xxl-resized-600.jpgDefeasance transaction volume exploded during the fourth quarter of 2014. In fact, last week the Defease With Ease® team defeased over $142 million of commercial real estate loans. Transactions ranged from $1.6 million to $39 million and were secured by retail, multifamily, self-storage, hotel and mixed-use properties located from New York to California. The team also closed a $14 million defeasance of a mixed-use property in Ontario, Canada.
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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.
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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Retail Properties: This Year’s Hottest Gift

In the spirit of the biggest retail season of the year, we’ve compiled an analysis of the retail investment market. Based on what we found,it appears that sellers are receiving an early gift!
According to CoStar, at $42.7 billion, 2014 retail investment sales have already exceeded last year’s number by 13%. Ryan McCullough, CoStar’s real estate economist, estimates that sales volume in the fourth quarter will total approximately $16.8 billion, an uptick of $3 billion compared to the fourth quarter of 2013.
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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.”
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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