Berkadia Predicts Where the Deals Will Be This Year

Despite questions about rent payments being made on time, multifamily performed stronger than anticipated, according to Berkadia’s 2021 Outlook Powerhouse Poll.

Berkadia’s proprietary poll, which collected insights from nearly 150 Berkadia investment sales advisors and mortgage bankers across 60 offices in December 2020, found optimism that 2021 will be a strong year for the industry.

Berkadia mortgage bankers and investment sales advisors are encouraged by the way the industry has weathered COVID. While 76% percent of Berkadia’s professionals say the CRE industry has fared better than they expected, 85% think ongoing economic uncertainty will have somewhat or little impact on deal closings in 2021.

“At the beginning, we were all expecting the worst,” Ernie Katai, executive vice president and head of production at Berkadia, tells GlobeSt.com.  “When the poll was taken, we had nine or 10 months under our belt. At that point, we realized we were still standing.”

The Berkadia professionals expect investors to pursue acquisitions (49%), seek immediate financing on currently owned properties (22%) and look at new property types not previously in their portfolio (8%). Fifty-two percent expect commercial real estate capital conditions to return to normal by the end of 2021.

“These lower interest rates fueled the year on the debt side,” Katai says. “While the investment sales stopped [for a while in the Spring], people looked at their portfolios. A lot of people went for security, where they could get historically low rates and lock them up for 10 years or longer.”

Given economic dislocations caused by the pandemic, 91% of Berkadia’s professionals strongly or somewhat agree that investors are more interested in affordable housing properties now. Berkadia’s mortgage bankers and investment sales advisors believe that Class B (49%), true affordable (16%) and Class C or true workforce (14%) will be the housing property-types most of interest to investors in 2021.

Berkadia’s professionals believe that modifying tax credit policy (45%), increased investor prioritization (16%) and regulatory changes for GSEs (14%) are the top catalysts for potential affordable housing relief.

Given the migration of people out of the cities during the pandemic, it’s no surprise that Berkadia’s Research Team expects rent appreciation to be highest among secondary and tertiary metros with above-average job growth. Forty-one of Berkadia’s professionals believe the Southeast will have the greatest CRE financing and deal activity in 2021.

“People are really looking for business-friendly states and areas,” Katai says. “I think the Southeast, according to the poll, is one of those areas where we’re going to see some real good continued activity. I do still think we’ll see activity in the Southwest.”

With historically low interest rates and an increase in activity by government-sponsored enterprises and the US Department of Housing and Urban Development, lending activity was healthy in 2020. Berkadia’s mortgage bankers expect to see the most activity from GSEs such as Freddie Mac and Fannie Mae (80%) in 2021. Sixty-one percent ranked interest rates as having the greatest impact on major multifamily financing trends in 2021.

CRE relied on technology to help make a quick transition to remote work early in the pandemic. However, even after COVID-19 and social distancing are things of the past, 97% of Berkadia professionals strongly or somewhat agree that the commercial real estate industry will continue to operate digitally more than before.

Berkadia’s mortgage bankers and investment sales advisors said that streamlining deal processes (43%), enhancing investment decision making (25%), enhancing insight into tenant behavior (11%) and increasing flexibility around deal closings (11%) top the list of the technologies having the most significant impact on the commercial real estate industry over the next five years. They believe that clients most value the ability to make data-backed investment decisions through local and national market insights or property-type data (71%).