CREFC Members Offer Rare Market Insight In New Survey

WASHINGTON, DC-Ever wonder what commercial lenders really think about the state of the industry? It would be nice to know, from a financial planning perspective, how enthusiastic lenders are, or are not, about the market and where their concerns lie. Not to mention having them share the fruits of their data-gathering just for general edification.

Well here are some thoughts for the coming year from this sometimes-inscrutable community: floaters will become a fixture in the conduit market. There will be an increase in interest-only CMBS issuances and that is a "most concerning trend." Office will make a comeback. Cap rates will rise by at least 20 to 30 basis points in the next year as interest rates rise.

So say the CRE Finance Council, or CREFC, members in the association's inaugural 2014 Outlook Survey, which it is releasing on Friday morning in advance of its 2014 January Conference in Miami next week. The conference is expected to have some 1,500 attendees – one of the organization's best turnouts, especially in recent years.

Besides offering an interesting insight into a group that usually plays its cards close to the proverbial chest, this survey is also an important milestone for CREFC, which has been making significant changes in the last few years to expand and deepen its reach into all sectors of the CRE finance community.

"This is the first broad based market outlook survey that we have done," CREFC President and CEO Stephen M. Renna tells GlobeSt.com.

"It is an important survey because it consists of feedback from all lending sectors."

Renna reports CREFC will be rolling out other surveys as well including one, intriguingly, from the borrower community – a group that the association does not represent.

Other predictions from the survey:

• Loan underwriting standards will tighten in response to rising interest rates. 83% of CREFC members say this will happen.

• The multifamily sector will see the largest percentage increase in conduit lending in 2014, according to 59% of CREFC members.

• The multifamily, office and hotel sectors will experience the largest increase in rental-rate growth nationally in 2014.

• 79% of CREFC members believe cap rates will rise by at least 20-30 basis points in the next year. 18% believe cap rates will rise by 50 or more basis points in 2014.

• Underwriting Standards: 83% of CREFC members expect that the anticipated rise in interest rates will lead to the tightening of commercial real estate loan underwriting standards in 2014.

• Apartment-Sector Lending by Conduits: 59% of CREFC members believe the multifamily sector will experience the largest percentage increase in conduit lending in 2014.

• 39% of CREFC members believe the increasing volume of interest-only loans is the "most concerning trend" in new CMBS issuance underwriting.