CRE Attorneys Bullish on Capital Flow

MIAMI—Five years ago, it seemed the commercial real estate sky literally was falling. Today, confidence is U.S. commercial real estate is rising. That's the major takeaway from a new Akerman LLP survey of top 200 CEOs, CFO, COOs and other top national real estate executives serving clients across the Americas.

Specifically, the Akerman Real Estate Industry Outlook Survey used the words “new heights” to describe the rise of investor and lender confidence in US commercial real estate. Unveiled at the fifth annual Akerman U.S. Real Estate Summit, the survey shows domestic investors have a stronger appetite for real estate assets than in recent years. What's more, capital availability from a wide range of equity sources also is expected to improve in 2014. Increased activity by institutional forces is a highlight of the survey findings.

"We developed the Akerman Real Estate Industry Outlook Survey after the real estate downturn to help our clients better understand and anticipate changes in the market," says Richard Bezold, chair of Akerman's real estate practice group. "In conjunction with the Akerman US Real Estate Summit, the survey provides real estate leaders with valuable data and insights on new market trends and investment opportunities, and overall confidence levels."

Let's dig into the survey result. For starters, a whopping 70% of real estate executives reported a more optimistic outlook about the market in 2014 than in 2013. Respondents predict increases in capital availability from nearly all sources except government entities, which have remained at the bottom of the capital availability pool for two consecutive years.

In 2014, respondents predicted, private equity sources will drive US commercial real estate financing while REITs will remain the leading source of real estate debt and/or equity funding. Not to be left out of the commercial real estate capital equation, survey respondents also believe banks will boost funding in 2014. Indeed, confidence in the banking industry as a primary source of commercial real estate financing has increased by 34% since 2011.

What about the CMBS market? This capital source should play a more pronounced role in 2014, the survey respondents said.

That's a bullish outlook considering where we were three years ago when less than 1% of industry executives expected to see a change in capital availability within the CMBS sector. A third of executives predict that CMBS issuance will be an active component in the capital stack for 2014.

The multifamily sector will see the most real estate transactions in 2014, a trend that has been consistent for the last four years, according to a general consensus. Akerman survey respondents also expect the industrial sector to witness an influx of activity, closing the second most deals during the year. Retail, hospitality, and office sectors will follow industrial.

Foreign investment remains a hot topic and is expected to stay at the fore in 2014. Akerman survey respondents predict the US will remain a top global investment destination. In fact, they expect foreign investment will further drive activity across many US real estate sectors, with a third of respondents indicating that the nation will see an increase in foreign spending in 2014.

What do foreign investors want? Multifamily, according to more than half of the real estate executives represented in the survey. And the majority of the capital will rush in from Europe.

The story is a little different in the hospitality and industrial sectors, where about half of real estate executives predict that investment will come from Latin America while capital sources in the retail and office sectors are predicted to primarily be European and Chinese. Fifty-one percent say that the greatest increase in Latin American real estate investment in the US will come from Brazil, which is in line with last year's survey predictions.

"The new year is already presenting new opportunities for many of Akerman's clients as we continue to see an upturn in U.S. commercial real estate," says Bezold. "Latin American investment, in particular, is expected to continue to influence investor and development activity in New York and Miami, and in many secondary U.S. markets as well."

Although the overall tone is bullish, there are some X factors on which real estate executives are keeping a close eye. Government shutdowns and future government spending continue to mute executive confidence levels, for starters.

Fifty-two percent of survey respondents cited government policies and Congressional gridlock as primary reasons for their lack of confidence. For three consecutive years, real estate executives have reported U.S. policies, availability of credit, and refinancing challenges as the most pressing issues facing the real estate industry.

The good news: Concerns about refinancing challenges have decreased by 20% since the 2011 Akerman Survey, while the uncertainty of government policies has increased by 7% during the same period. Global economic uncertainty also continues to be a concern with 25% pointing out this issue.