ORLANDO—Life company lenders, bankers and commercial mortgage-backed securities lenders agree: commercial real estate debt remains a strong relative value investment in today’s low interest rate environment.
“With so few other alternatives besides real estate to make loans in, real estate has been on a pretty good run,” said Scott Bassin, executive vice president and head of multifamily with PNC Real Estate, at the Mortgage Bankers Association’s Commercial Real Estate Finance/Multifamily Housing Convention & Expo, held here this week.
MBA projects commercial and multifamily mortgage originations will grow to $300 billion this year, up 7% from 2013 volumes. “The fourth quarter marked the highest volume of mortgage originations since 2007, as all the major investor groups increased their activity,” said MBA vice president of commercial real estate research Jamie Woodwell. “Initial indications are that 2013′s volume was up 15% from 2012, putting 2013 originations in the neighborhood of $280 billion in closed loans.”
Gary Otten, managing director and head of debt strategies with MetLife Inc. predicted that life company allocations to commercial real estate will continue to increase.
“Commercial mortgage exposure on average is around 9%,” he said. “That’s much different than in the late 1980s and early 1990s and through the last cycle when [CMBS] took away a lot of that market share, so there is significant room to grow.”
Matthew Salem, managing director with Rialto Capital, said he expects $100 billion in CMBS issuance in 2014, up from $48 billion in 2012 and $86 billion last year. “Largely due to monetary policy I expect it will be another big issuance year,” he said. “There is plenty of capital in the market today.”
“CMBS capacity is changing day by day; there are now 37 different conduit lenders in the market [compared to seven in 2011 and 17 in 2012],” said J. Theodore Borter, managing director with Goldman Sachs. “So there’s a ton of CMBS lender capacity on the market in part because 2012 and 2013 were very profitable years.”
One key difference between CMBS 1.0 and CMBS 2.0: the velocity of transactions, he added. “People were doing three or four conduit deals a year in 2006 and 2007,” he said. “Today we’re doing 12 a year.”
“We think it’s a huge opportunity,” said Dennis Schuh, managing director and head of CMBS origination with J.P. Morgan Securities. “We’re pretty early in the economic cycle and many people think the economy will still be accelerating in 2016. Property values have risen a lot faster than risk factors. Look back through the crisis, we saw the same number [of CMBS lenders] in 2006 through 2007. Is 37 too many? I don’t really pay attention to how many there are; your job is to find a way to do business. It’s nothing new; it’s a dynamic we’ve had to deal with many times.”
Reprinted with permission from MBA NewsLink and the Mortgage Bankers Association.