WASHINGTON, DC—More liquidity. Underwriting that is more aggressive. New sources of capital and a strengthening economy are among the high note findings of the newly-released survey of Commercial Real Estate Finance Council members, who make up the backbone of the CRE lending community.

Underlying it all is one common—and now very familiar—denominator: the search for yield that continues unabated among investors.

"That is what is driving liquidity," CREFC president and CEO Stephen M. Renna tells GlobeSt.com. "The economy is flush with capital because of the low interest rate environment and strengthening fundamentals."

Commercial real estate checks off more than a few boxes for capital seeking a home in that it offers diversification along with the higher yield. "That is why we are seeing a lot of year-over-year increases by investors and capital providers in their CRE allocations," Renna says.

The strengthening US economy should also fuel lending. Most survey respondents, 61%, are expecting the economy in 2015 to be somewhat better than 2014.

For borrowers all this will likely translate into more aggressive underwriting, according to 76% of survey respondents. If the needle doesn't move forward, though, it is unlikely it will move back: 65% of respondents expect underwriting this year to use current cap rates.

CMBS origination is also expected to grow this year, with 70% of survey respondents predicting issuance in the range of $100 million to $125 million with the largest volume increase seen in CMBS floaters and the majority of issuance concentrated in fixed-rate conduit.

The losses the market experienced from CMBS 1.0 are history now, Renna says. Investors are increasing their allocations in these instruments; at the same time, new investors are taking positions. "Hedge funds, money market managers and insurance companies are all increasing volumes," he says. "Insurance companies are buying bonds throughout the stack now, not just the most conservative tranches. Again, the story is that they are all looking for yield."

Other capital providers are expected to be equally as flush.

Eighty-nine percent of survey respondents expect balance-sheet lenders to originate more loans this year compared to last. Loan terms are expected to stay the same for most organizations, while the concentration of new loans are expected to be in the multifamily and office sectors.

In addition, 69% of survey respondents expect private capital or nonbank sources to originate more loans in 2015 than in 2014, with the largest percentage of the loan profile in first mortgages.

There are some dark notes in the otherwise optimistic survey. GSE loan origination volume is expected to remain about the same as 2014, but there is concern in the credit quality of multifamily loans and the likelihood for oversupply in major markets. Also the table is being set for a higher cost of capital in 2016, thanks to new regulations, Renna says.

Come back to GlobeSt.com tomorrow when Renna talks about what these regulations could mean for lending in 2016 and beyond.

Instant Insights /

CRE Lenders See More Liquidity, Aggressive Underwriting in 2015

Related Stories

Recommended For You