Here Are Trepp's Top Secondary Metros for CRE Investment

Seattle-Tacoma-Bellevue is the top secondary metro for CRE investment, according to a new study from Trepp, followed by San Jose-Sunnyvale- Santa Clara and Orlando-Kissimmee-Sanford, Florida.

“The three MSAs benefited from having investment profiles that touted strong weighted average debt service coverage ratios (DSCRs), high outstanding volume growth (OVG) since 2020, and low distress rates (delinquency and special servicing rates) despite economic uncertainty,” Trepp analysts say. Trepp analyzed multiple factors in analyzing a total of 24 metro areas to arrive at its rankings, including weighted-average DSCR,  MSA outstanding volume growth rate (OVG), new issuance (Jan 2022 – August 2022), population growth rate, unemployment rate, CMBS delinquency rate and CMBS special servicing rate. CRE collateralized loan obligations were also added to this year’s data set, as was agency data from Fannie Mae and Freddie Mac.

“This year, the findings were heavily made up of the MSAs that have found a way to heal from old distress and manage new economic outcomes,” the report notes. ” A common theme in these MSAs was low CRE distress and low unemployment levels – pointing to areas that have been able to make up ground on their pandemic losses while also maintaining through this economic cycle.”

Growth in CRE investment the Seattle MSA hit 20% last year, and the MSA benefits from low distress and the fourth highest amount of issuance in 2022 at $1.65 billion. Seattle also became the 10th largest regional economy in the country last year, surpassing Atlanta for the first time. In 2020 the region’s economy grew two and a half times faster than the overall national average.

Seattle was followed by San Jose – Sunnyvale – Santa Clara, with a weighted average DSCR of 2.06 and and just 0.71% of loans in special servicing. The region also has low unemployment and recorded high levels of investment in 2020 – 2021.  The Orlando MSA followed closely behind at #3, thanks to booming population growth and a favorable tax basis.  The region was the fifth highest among all MSAs for loan issuance in 2022 and also has low unemployment and distress.

Pittsburgh, St. Louis and Cleveland-Elyria, Ohio are the three worst secondary metros for CRE investment. The metros struggled with low issuance, high unemployment, and high levels of distress amidst population decline.