CMBS Seen Soaring Next Year in Real Estate Lending GrowthDavid M. Levitt
Commercial-property lenders are expected to loosen restrictions imposed after the 2008 credit crisis, with a jump in financing projected for next year, a survey by PricewaterhouseCoopers LLP and the Urban Land Institute shows.
The commercial mortgage-backed securities market ranks at the top of the survey for expected change in availability, according to a report to be released today. Several respondents estimated originations may exceed $100 billion in 2014, which would be more than any period except 2005 through 2007, when the market for real estate bonds surged before rising delinquencies caused demand to crash.
Investor demand for commercial real estate should grow along with a steadily improving economy, even if interest rates climb, according to the report. The reason, in part, is a rising level of comfort among lenders, including commercial banks, insurers and private investment firms, said Mitchell Roschelle, PwC’s national real estate practice leader and co-chairman of the study, based on responses from more than 1,000 property investors and lenders.
“Some of the credit-quality concerns that people had with real estate have evaporated with time,” he said in a telephone interview from New York, where the professional-services firm is based. “We’ve worked through those problems, and the other thing is what used to be headwinds have changed to tailwinds, in many cases, in the eyes of real estate market participants.”
The fiscal cliff, speculation over potential tapering of Federal Reserve debt purchases, the partial government shutdown and the brinkmanship over the debt limit “didn’t seem to chill the commercial real estate market,” Roschelle said. “We continued to add jobs, we’re continuing not to wildly add to supply, housing’s recovering, real estate cash flows are improving.”
Banks have arranged $63.5 billion of CMBS this year, data compiled by Bloomberg show. Issuance is poised to reach $80 billion in 2013, according to Credit Suisse Group AG.
About 43 percent of survey respondents said they expect debt-underwriting standards to be less rigorous next year, the most since PwC and the Urban Land Institute started asking the question in 2009. Last year, only 20 percent held that opinion.
About 17 percent believe lending will become more rigorous next year, down from 39 percent a year ago. The remainder told the researchers it should be about the same.
Steven Witkoff, a New York-based developer, is among those who say it’s still tough. His deals this year an agreement to purchase of the Park Lane Hotel in midtown Manhattan, which may be converted to condominiums, and the acquisition with a partner of a lower Manhattan site for a condo tower.
“Maybe in New York it’s a little easier, maybe, because that market is a more liquid market,” said Witkoff, who is part of an investor group that’s building a hotel and retail complex on a Times Square site that was acquired last year. “But I think that the credit-transmission system is still clogged.”
Witkoff said he sought financing from a global bank and a non-bank commercial-property finance company to finance two hotels and an office building in Miami, properties he said he paid a combined $170 million for.
“We’ve gotten loans done, but it’s a grind,” he said. “I have the relationships, the track record and the balance sheet, and an office that can execute, and I had to demonstrate all that. Lenders are being very careful and doing their homework before anything.”
The survey’s findings don’t suggest lenders are “going to be throwing money around like crazy in 2014,” Roschelle said. “There’ll be more participants in the market, which is going to help fuel the continuing recovery in real estate.”
Anthony Orso, chief executive officer of Cantor Commercial Real Estate Co., a firm sponsored by Cantor Fitzgerald LP, said his firm is “very bullish on the CMBS market.”
“The real question is not whether the lending demand will be there,” he said. “This year, as in the last year, there seems to be hiccups. The government shutdown, that’s a hiccup. Tapering, that was a hiccup. We seem to have these irregular moments during the year that cause a delay in executing transactions.”
In September, CCRE led the financing on its biggest loan to date, $580 million, to refinance the Miracle Mile Shops on the Las Vegas Strip. Two years ago, such a deal “absolutely would not happen,” Orso said.