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CRE Finance World, Winter 2012

Roundtable: Outlook 2012 down by about 20 basis points, until you consider the fact that Brian P. Lancaster: the office market can absorb this much space — and more — in a On the transactions side, what are dollar volumes or transaction single quarter, during relatively healthier times. counts saying about investor appetite for commercial real estate? So the short answer is that we’re seeing glimmers of recovery for Victor Calanog: fundamentals like rents and occupancies across many commercial property types and geographic markets, but it’s not coming at a very Broadly speaking, dollar volumes and transaction counts are up impressive pace. This is, of course, unsurprising given the backdrop about 5 to 10% from last year, so appetite for commercial properties of grindingly slow economic growth and an equally lackluster pace is still healthy. We have yet to see investors take more risks with of job creation, so the commercial property markets are simply value add properties, though. Most of the transactions are still following suit. I don’t expect 2012 to be much different, given that occurring in gateway cities, and for higher quality properties that forecasts for GDP growth remain at or around 2 to 2.5% for the do transact, they’re fetching yields we haven’t seen since 2006 or coming year, if not less once you account for a mild contraction in 2007. Some are scared about a mini-bubble forming for specific Europe. Mixed results, with some property types performing very property types, but with interest rates remaining relatively low and well, and others bouncing along the bottom. money still chasing yields, I don’t expect any mini-bubbles to pop anytime soon, and even if they do burst the effects won’t be as Brian P. Lancaster: systemically damaging since transaction volume is still down by about 70% versus the boom years of 2007. Yes, some investors Let’s focus on retail and hotels, which make up an increasingly might be burned but this also depends on their hold period for this larger part of CMBS market. What’s the outlook on retail and income-producing asset, which generally tend to be long. Gone hotel fundamentals? Please also give us your thoughts on other are the days of commercial buildings being flipped within a year sectors, such as office and apartments? and a half to three years. Victor Calanog: Brian P. Lancaster: CMBS loans for retail properties now account for about a third of In terms of scalability it’s been a bit of a see-saw in this market. all outstanding balances, and actually make up about half of 2010 How has the availability of finance impacted commercial real to 2011 issuances; collateral based on hotel properties account for estate valuations? CMBS lending had been growing but then about 8 to 9% of outstanding balances. In line with the spectrum slowed as the markets became more volatile because of events of mixed results, you’ve got retail properties bouncing along the in Europe. How has that impacted the property markets? (Distressed bottom, with vacancies for neighborhood and community centers property markets versus high quality property markets, primary at a 20 year high of 11% and vacancies for malls over 9%. Those versus secondary, etc.) properties underlying recent CMBS issuances, however, tend to be higher quality retail properties that survived much of the pullback in Victor Calanog: consumer spending, so it’s not all doom and gloom for retail. You’ve got higher quality malls, power centers and other types posting There seems to be little doubt that the GSEs are playing a big part decent gains in occupancy, and this weekend showed that the US in the dramatic resurgence in the multifamily sector, both in terms consumer isn’t completely gun shy, with preliminary numbers for of financing existing debt rollovers and construction loans for new Black Friday up 7 to 8% relative to last year and Cyber Monday properties. By contrast, I have no doubt that transaction markets up well over 20%. would have been a lot healthier if we reached $35 billion to $45 billion issuance figure for CMBS that was widely forecasted when RevPAR for hotels has been healthy, increasing about 8% year over we started 2011. We’d probably see more investors taking risks in year through the week ended November 19. I mentioned office value-added properties and tertiary markets, versus concentrating properties earlier, and I expect vacancies to follow the trajectory of their focus on higher quality buildings in gateway cities. We’d be job growth. If job growth accelerates, expect leasing to be healthier. fortunate if we topped $30 billion in CMBS issuances this year, Multifamily is the star of the show here, with vacancies expected and I’ll leave it to the real experts in this group to speculate on to dip well below 5% next year. That means higher effective rent what the number might be for 2012, but remaining uncertainty growth for supply-constrained markets, and good income results about the regulatory environment, and the increasing probability that for multifamily REITs. many institutions might be mired in what could be a deleveraging debacle in Europe does throw some dark clouds into the mix for the near term. A publication of Winter issue 2012 sponsored by CRE Finance World Winter 2012 7


CRE Finance World, Winter 2012
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