Cap Market Forecast: Sunny, Clouds Brewing

By Morris Newman

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Brian Stoffers, President,
CBRE Capital Markets

LOS ANGELES-Plentiful capital will be available in 2012 for core assets, even as those assets are becoming increasingly scarce, according to a recent report from CBRE Capital Markets. The report also foresees a continuation of the “deal velocity” of recent months, and increasing competition among lenders.

The demand for capital will be so great, however, that some life insurance companies may be forced to increase their loan allocations from 10% to 25% in the coming year, according to the same report. “We continue to see real estate and mortgage finance fundamental gradually improve, and with the availability of substantial capital, commercial real estate continues to become more of a core investment alternative and one that can provide very attractive risk-adjusted returns,” according to the report, authored by CBRE Capital Markets president Brian Stoffers.

Not all lenders are thriving in the current environment, however.CMBS conduit lenders, however, may turn out to be big wallflower at the lenders’ ball, according to the CBRE report.

A “lender gap,” in fact, may appear if CMBS continue to offer higher rates and bigger spreads than competing lenders, according to the report. At the end of 2011, CMBS appeared less competitive than other lenders, notably banks, public agencies like Fannie Mae and Freddie Mac, and conduits. As of Third Quarter 2011, CMBS represented only 7% of total real estate lending activity.

“The slowdown in CMBS lending in recent months is concerning, however,” writes Stoffers. “The recovery of loan origination CMBS is important to the balanced recovery of the commercial lending markets, especially in light of the growing demand for refinancing in 2012,” Stoffers writes. About $63 billion in CMBS is due to mature in 2012, according to the Mortgage Bankers Association. 

For multifamily properties, Fannie and Freddie remain “the dominant source of financing,” according to the CBRE report, and the loan volumes of both agencies were far above the previous year’s level in the third quarter.

Uncertainty in world affairs clearly worries Stoffers. Many “substantive threats remain, both domestic and global and we recognize that the recovery remains fragile,” he writes. “While we do not concede that this fragile nature is the “new normal,” we recognize it will likely remain through much or all of 2012,” he adds. 

Categories: West, Capital Markets, Special Reports, Los Angeles