Page 14

CREFW-Fall2014 10.15.14

CRE Finance Roundtable: The Risk Cycle Moderator: Sam Chandan, Ph.D Founder & President Chandan Economics Participants: David Brickman Executive Vice President & Head of Multifamily Freddie Mac Kim Diamond Senior Managing Director & Head of Structured Finance Kroll Bond Rating Agency David Durning President and Chief Executive Officer Prudential Mortgage Capital Company Leonard Kiefer, Ph.D Deputy Chief Economist Freddie Mac Brian Olasov Managing Director McKenna Long & Aldridge Peter V. Scola Co-Founder, Co-Head of Origination & Capital Markets CCRE CRE Finance World Autumn 2014 12 Sam Chandan: Thanks to everyone for joining today’s Roundtable discussion. The focus areas for our conversation are emerging trends in underwriting and the outlook for risk-taking in the commercial real estate finance market. Working primarily in the bank and life company lending spaces, I see fairly clear signs of a shift in underwriting standards and lenders’ growing tolerance for risk. But I suspect we will each have a unique perspective on where we are in the market cycle and the fairest way to describe current risk-taking behaviors. Our discussion cannot ignore that historically low interest rates have been one of the defining features of the commercial real estate recovery and return to expansion. I wonder how prepared we are for an abrupt inflexion in rates, or even a slow reversion to higher underlying costs of capital. To kick things off, I would like to ask Len for Freddie Mac’s outlook on interest rates. Can you give some context for today’s discussion, Len, since we have become so inured in the post-crisis period to the availability of low cost financing? Leonard Kiefer: Rates have been very, very low and it is somewhat surprising that they remain low. Heading into 2014, we were expecting to see rates move higher over the year. Instead, rates have been extremely flat. Looking ahead, we are not really expecting to see a lot of upward movement. As we get closer to potential tightening on the Fed Funds rate, you might see some increase in volatility in rates. But for now and for the remainder of this year, with all of the concerns internationally and concerns about the overall recovery, rates will remain low although we are getting better news recently. We do not see them rising sharply until we have a stronger economic recovery underway. Then the Fed might really start to raise rates. We do not see that happening until next year. Sam Chandan: You hint at concerns about the overall recovery. Can we spend a moment exploring that? I think it is fair to say the slow labor market recovery, in particular, has presented a real challenge for our industry and the demand-side of the space market equation. Perhaps not in the institutional segments of the market where we have the highest quality office buildings or the largest regional malls, but when we look very broadly, a weak labor recovery has impinged on absorption. What do you see happening in that regard over the course of the next year or two?


CREFW-Fall2014 10.15.14
To see the actual publication please follow the link above