WASHINGTON, DC—The continued recovery in commercial real estate continues to be offset by policy-related risks, and CRE executives accordingly haven't changed their overall outlook much in the past few months. The Real Estate Roundtable's Sentiment Survey for the fourth quarter, released Friday and based on responses gathered earlier this month, shows the “Overall” Sentiment Index unchanged at 70 from the previous quarter.

“On the eve of the congressional mid-term elections, our Sentiment Index shows favorable views about current market conditions, yet also reflects concerns about the lack of clear direction in many federal policies, primarily terrorism risk insurance,” says Jeffrey D. DeBoer, the Roundtable's president and CEO. The Terrorism Risk Insurance Act is scheduled to expire on Dec. 31, and thus far Congress has not committed to reauthorizing it.

Unless lawmakers pass a long-term reauthorization of TRIA when they return to the Capitol in November, says DeBoer, “financing for CRE projects will be directly threatened, job creation will suffer as it did after 9/11 and businesses can expect a general slowdown as many financing contracts will be found to be in technical default without terrorism insurance."

Further, the formal end to the Federal Reserve's quantitative easing program means that the Fed will turn its attention to the question of when to begin raising interest rates. Understandably, that has CRE executives concerned, and helps explain a two-point drop in the Roundtable survey's “Future” index from 67 in Q3 to 65 currently. Conversely, the “Current” index rose two points to 74 from the prior quarter.

“Even though commercial real estate executives report strong capital flows, improving business operating fundamentals and low interest rates, our survey also registers concerns about what the underlying economic conditions might be when rates eventually rise, potentially affecting the flow of capital and real estate pricing,” DeBoer says. “Now that the Fed has ended its monthly bond purchases, interest rate concerns are moving to the forefront.  But in the near-term, our survey shows the need for reasonable action on policies affecting CRE, such as the urgent situation with TRIA.”

The Overall Roundtable Index is scored on a scale of 1 to 100 by combining the average of the Future Index and the Current Index.  In order for the index to register a perfect score of 100, all respondents would have to answer that they believe conditions are “much better” today than one year ago and will be “much better” a year from now. Survey data were gathered from Oct.1 to 15 by Chicago-based FPL Associates on the Roundtable's behalf.