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CREFC Fourth-Quarter 2021 Survey Shows Drop in Overall Sentiment on Concern for U.S. Economy

January 24, 2022

The CRE Finance Council (CREFC), the industry association that exclusively represents the $5.0 trillion commercial and multifamily real estate finance industry, today announced the results of its Fourth-Quarter 2021 CREFC Board of Governors' (BOG) Sentiment Index. CREFC's quarterly Sentiment Index is derived from the Board's responses to 10 core questions on the state of the CRE finance market. The Sentiment Index was initiated in the fourth quarter of 2017 and thus tracks markets pre-COVID, during COVID, and today as we continue to recover from the worst of the pandemic's impact.

Souring Economic Outlook Proves a Drag on Sentiment

After the Index hit its all-time sentiment high of 119.2 in 2Q 2021 (100 is equilibrium), overall sentiment dropped sharply for the second consecutive quarter in 4Q 2021 to 105.2.

The primary driver for the change was a meaningful shift in the outlook for the U.S. economy in 2022. The 4Q 2021 survey indicated only 27% of the Board expects the economy to perform better, down from 67% in 3Q 2021. In addition, 35% of the Board expects the economy to perform worse, up sharply from only 9% in 3Q 2021.

 

A secondary component for the change was the BOG's expectations for investor demand for CRE and multifamily equity over the next year. The 4Q 2021 survey indicated 54% expect more demand for CRE assets, down from 82% in 3Q 2021 and 80% in 2Q 2021. To the good, as with the prior quarter, only 3% expect less demand. Sentiment for all CRE finance businesses moderated from the preceding quarter. Still, it remained strong, with 62% of the Board having a positive outlook over the next 12 months and only 5% holding an unfavorable view.

"Given the increases in COVID-19 infections late in 2021 as a result of the Omicron variant, as well as continued inflationary pressures, it was not entirely surprising to see a drop in overall sentiment this quarter," said Lisa Pendergast, Executive Director of CREFC. "However, we are better equipped as a country and an industry to weather the Omicron storm than at any other point in the pandemic. And, while Omicron may delay the recovery in some sectors of commercial real estate, like office, demand for CRE assets remains strong as evidenced by the surge in CRE investing and lending, with both sectors hitting new highs in 2021 and more of the same expected in 2022.

"We are paying close attention to the trends that concern our members the most and will continue to provide the most up-to-date analysis possible. As we continue down the path to recovery across the industry, I look forward to our board's continued insights and perspectives."

About CREFC's Board of Governors Sentiment Index

The CRE Finance Council (CREFC) is the trade association for the commercial real estate finance industry. Over 300 companies and nearly 18,000 individuals are members of CREFC. CREFC's members serve a critical role in the US economy by financing office buildings, industrial and warehouse properties, multifamily housing, retail facilities, hotels, and other types of commercial and multifamily real estate.

Nearly 60 senior executives in the commercial real estate finance markets represent CREFC's Board of Governors and hail from every sector of the commercial real estate lending and mortgage-related debt investing markets. CREFC Governors include balance sheet and securitized lenders, loan and bond investors, mortgage bankers, private equity firms, loan servicers, rating agencies, attorneys, accountants, and others. CREFC's Governors serve up to a total of six years on CREFC's Board and are all senior members in both their firms and the industry.

The goal of CREFC's BOG Sentiment Index is to gauge quarter-to-quarter shifts in market conditions for the CRE finance market and the outlook going forward. The Sentiment Index equally weights the responses to each question and then sums those weighted responses to create a single index. Detailed results for each question can be found here.

About CREFC
The CRE Finance Council (CREFC) is the trade association for the commercial real estate finance industry with member firms including balance sheet and securitized lenders, loan and bond investors, private equity firms, servicers and rating agencies, among others. CREFC promotes liquidity, transparency, and efficiency in the commercial real estate finance markets, and acts as a legislative and regulatory advocate for the industry, playing a vital role in setting market standards and best practices, and providing education for market participants.

The primary driver for the change was a meaningful shift in the outlook for the U.S. economy in 2022.

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