Features

2018: Year of Transition for CMBS Industry

by Kristin Harlow February 27, 2018

As a result of new Dodd-Frank risk retention regulations that went into effect in December 2016, last year was widely considered to be a pivotal period for the CMBS industry. Formulated to hold banks more accountable for their own investment decisions and place a greater emphasis on collateral quality, the regulatory provision imposed higher capital charges on sponsors by requiring them to retain a 5 percent interest in an asset-backed securitization. The mandate fueled concerns that CMBS would become less competitive compared with other commercial real estate lending sources, leading to speculation of a potential slowdown in interest among investors, a reduction in market liquidity and higher borrowing costs. In short, the rules require issuers to retain a portion of the credit risk in their own transactions. This is accomplished by setting aside additional capital that amounts to 5 percent of the value of newly issued bonds on their balance sheets. There are three different methods of fulfilling the retained risk requirement, which take shape in the form of one of three structural options: a horizontal slice equal to 5 percent of the lowest bonds in the deal waterfall, a vertical slice that amounts to 5 percent of each tranche …

February 27, 2018

Features Top Stories

Restrictive Bank Regulations Open Door for Alternative Lenders

by Jeff Shaw February 22, 2018

Upon the introduction in 2015 of new banking regulations related to holding extra reserves for short-term or riskier commercial real estate loans, banks reined in lending. While the pullback affected property investors across the board, developers felt it most. Typical loan-to-cost ratios for construction financing dropped 20 percentage points to 55 percent, interest rates ballooned by some 150 basis points to around 350 basis points over 30-day LIBOR (London Interbank Offered Rate), and the number of banks that would consider development financing plunged, say mortgage bankers. In 2017, the number of banks willing to look at potential deals grew and interest rates dropped some, but leverage generally remained capped at 65 percent of costs. Consequently, borrowers more than ever are tapping non-bank lenders, particularly private debt funds. “The most notable change in 2017 was the growth in debt fund activity,” says Kathy Farrell, head of commercial real estate for Atlanta-based SunTrust Banks. “They certainly stepped in to fill the gap in construction and acquisition financing created by the pullback of the banks.” According to alternative asset research firm Preqin, 47 global real estate debt funds raised a record $28 billion in 2017, up from 32 funds that raised $19 billion …

February 22, 2018

Lancaster Pollard 2018 Seniors Housing and Care Survey

Features Multifamily Seniors Housing Top Stories

Lancaster Pollard Survey: 87 Percent of Seniors Housing Professionals Rate Industry as Highly Competitive

by Jeff Shaw February 20, 2018

COLUMBUS, OHIO — Increasing competition is becoming a larger and larger issue within seniors housing, as 87 percent of owners, operators developers and investors rate their local environment as either competitive or extremely competitive. That’s according to the 2018 Seniors Housing and Care Survey conducted by Lancaster Pollard. In December 2017, the Columbus-based real estate services firm sent an online survey to approximately 4,000 leaders at seniors housing and care facilities throughout the United States. Over the course of two weeks, 386 respondents completed the online survey. Out of the respondents, 62 percent were for-profit providers and 73 percent identified themselves as CEOs, CFOs or owners. The majority operated facilities with fewer than 250 units and all aspects of the continuum of care were represented. Generally, respondents reflected the belief that skilled nursing is going through trouble, with only 19 percent rating the outlook for the sector as “good” over the next three years. For comparison, 58 percent rated the assisted living outlook as “good,” and 55 percent said the same for continuing care retirement communities (CCRCs). Other major finds of the survey include that 82 percent of respondents cited a shortage of workers as a key concern over the …

February 20, 2018

Conference Coverage Features Retail Top Stories

Activation Is a Top Priority for Entertainment Destinations, say EEE Panelists

by Taylor Williams February 14, 2018

SANTA MONICA, CALIF. — E-commerce has claimed many victims in its siege of brick-and-mortar shopping, but perhaps none more so than big box retailers. As more of these spaces are vacated, demand for entertainment-based users to backfill them grows. Entertainment-themed tenants often require the same open-floor layouts and high ceiling heights that big box spaces offer. In addition, big boxes are typically found in malls and retail power centers, which have presumably been built in high-traffic and high-density locations. As such, entertainment tenants backfilling or building within a traditional retail development aren’t as reliant on “activation” of their sites to drum up business. But when you have a variety of entertainment tenants, including bars and restaurants, operating out of a single destination, it’s crucial to galvanize the property with events and programs. This was a trend discussed at the Entertainment Experience Evolution conference on Feb. 6-7 at Fairmont Miramar hotel in Santa Monica. A panel of professionals in the entertainment retail space discussed the role of activation in creating a “sense of place” at the conference, which more than 600 industry players attended. Moderator Nick Egelanian, president of SiteWorks Retail Real Estate Services, asked the other panelists to describe how …

February 14, 2018

Features Loans Top Stories

‘We Have Turned the Corner’ on Interest Rates Globally, Says MBA’s Chief Economist

by John Nelson February 13, 2018

SAN DIEGO — Michael Fratantoni, chief economist at the Mortgage Bankers Association (MBA), fully expects the U.S. national unemployment rate to fall well below 4 percent this year — possibly as low as 3.6 percent — leading to an acceleration in wage growth, inflationary pressures and, ultimately, higher interest rates. Nationally, the unemployment rate stood at 4.1 percent at the end of January. “This is an extraordinarily tight job market,” said the veteran economist, who pointed out that 17 states are approaching record low unemployment rates. His comments came Sunday afternoon during a special economic outlook session at MBA’s Commercial Real Estate Finance/Multifamily Housing Convention & Expo 2018 at the San Diego Marriott Marquis & Marina. The four-day conference, which concludes tomorrow, has drawn more than 3,300 attendees. Fratantoni appeared on stage with Jamie Woodwell, the association’s vice president of commercial real estate research. Woodwell provided analysis on the state of the property markets and trends in commercial/multifamily mortgage loan originations. Wage pressures mount According to the Bureau of Labor Statistics, average hourly earnings for workers on private nonfarm payrolls were 2.9 percent higher in January 2018 than in January 2017. “We’ll be between 3.5 percent and 4 percent for …

February 13, 2018

District of Columbia Features Loans Southeast Top Stories

‘A Record Year’: Commercial/Multifamily Loan Originations Increased 15 Percent in 2017, Says MBA

by John Nelson February 12, 2018

WASHINGTON, D.C. — Commercial and multifamily mortgage originations for all of 2017 increased 15 percent on a year-over-year basis, bolstered by the strength of the multifamily, industrial and office sectors, according to the Mortgage Bankers Association (MBA). The preliminary estimate was released Sunday during MBA’s Commercial Real Estate Finance/Multifamily Housing Convention & Expo 2018 in San Diego. The estimate is based on the MBA’s Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations. The MBA reported that originations totaled $491 billion in 2016. Breaking down the numbers Originations for hotel properties increased 26 percent in 2017 over the prior year, the MBA reports, followed by industrial (+22 percent), multifamily (+17 percent), office (+12 percent) and healthcare (+9 percent). On the flip side, originations for the retail sector declined 21 percent in 2017 due in part to the dramatic growth of e-commerce. Even so, it was banner year overall for the mortgage banking community. “Based on these preliminary numbers, 2017 was a record year for borrowing and lending backed by commercial real estate properties,” said Jamie Woodwell, vice president of commercial real estate research for MBA, which is headquartered in Washington, D.C. “The increase was driven by multifamily lending, particularly for Fannie Mae …

February 12, 2018

Conference Coverage Features Office Texas Texas & Oklahoma Feature Archive

InterFace Panel: Time to Rethink How We Meet Demand for Office Space

by Taylor Williams February 8, 2018

HOUSTON — Much like the preferences of younger generations are influencing how retailers pick their locations and sizes, the whims of today’s office-using workforce significantly impact the way professional services companies view their office spaces. This is not strictly an amenities-based trend. It goes beyond adding fitness centers, walking trails and food trucks to cater to Millennial workers. It’s an evolution of the role that office space plays in company budgets and operations. For developers and brokers in the office sector, it means rethinking the ways in which they meet demand. A panel of veteran players in Houston’s embattled office market addressed this trend and others during the InterFace Houston Office Forecast on Feb 1. Approximately 150 real estate professionals attended the event, which was held at the Royal Sonesta hotel in the Galleria area of the city. Old Product Trails Trends Houston’s office market has been hobbled by high vacancy and negative absorption as a three-year slump in oil prices has taken a toll on Houston’s energy industry. In addition, the sector also suffers from a lack of modernized product. Panel moderator Rand Stephens, managing director at Avison Young, said the latter factor is increasing demand for build-to-suit projects …

February 8, 2018

California Features Top Stories Western

Investors in Buy Mode, Keen on Value-Add Opportunities, Concludes RCM Survey

by Camren Skelton February 8, 2018

CARLSBAD, CALIF. — A majority of commercial real estate investors indicate that they are in a buying mode in 2018 and are particularly focused on properties in the value-add space, according to a survey conducted by Real Capital Markets (RCM). The National Investor Sentiment Report and follow-up interviews were completed in early January by RCM, a Carlsbad-based online technology platform for buying and selling commercial real estate. RCM surveyed more than 250 investors active in all property types across the United States to gauge their investment strategies and outlook for the year ahead. More than 75 percent of respondents classified their investment strategy as buy, or buy but trending toward hold, according to the survey. “Investors across the country continue to see great opportunity and benefit in commercial real estate investing,” says Steve Shanahan, executive managing director of RCM. “Regardless of the product type or whether the strategy is core or value-add, the focus is on finding assets that can deliver strong yields that outpace other investment options.” Of the respondents, a majority (58 percent) characterized themselves as value-add investors. In other words, they are looking for growth through renovation or repositioning properties to enhance value. These types of properties are …

February 8, 2018

Features Top Stories

Job Growth, Wage Gains Signal Healthy Start to 2018, Say Real Estate Researchers

by Camren Skelton February 6, 2018

Total nonfarm payroll employment rose by 200,000 in January, beating economists’ expectations, while unemployment held steady at 4.1 percent, the Bureau of Labor Statistics (BLS) said in a report released on Friday, Feb. 2. Perhaps most importantly, average hourly earnings increased 2.9 percent, marking the biggest jump since the end of the Great Recession. While upward pressure on wages is good news for workers and the economy, experts caution that an increase in wages could lead to a hike in interest rates. On the heels of the latest jobs report, REBusinessOnline reached out to three real estate researchers for their insights: Ryan Severino, chief economist for JLL who works out of the firm’s New York City office; Ken McCarthy, principal economist and applied research lead for the U.S. based in Cushman & Wakefield’s New York City office; and Don Ganguly, founder and CEO of Irvine, Calif.-based HomeUnion. What follows are their edited responses. REBusinessOnline: Total nonfarm payroll employment rose by 200,000 in January. Wall Street economists had expected an increase of about 180,000, according to Bloomberg. What factor(s) led the labor market to outperform expectations in January? Ryan Severino: I don’t view a difference of 20,000 jobs as substantial, but …

February 6, 2018

Conference Coverage Features Office Texas Texas & Oklahoma Feature Archive

Recovery of Houston Office Market Still Distant, Say InterFace Panelists

by Taylor Williams February 5, 2018

HOUSTON — If patience is a virtue, then developers and brokers in Houston’s office market are poised to become a bit more saintly. For the past three years, the story of the market has been a painful coinciding of sluggish oil prices hurting Houston’s largest tenants, while deliveries of new office spaces are at a peak. According to CoStar Group, more than 5 million square feet of office space has been delivered in Houston during each of the past three years. The nosedive that oil prices took beginning in early 2015 set rising vacancy in motion, leading to an 11-quarter streak of negative absorption. And while the price of oil has risen substantially to start the new year — increasing by roughly $10 to its current price of $65 per barrel over the last two months — that won’t force an overnight recovery in this struggling niche. This one-two punch has players in the space wondering when the market might finally begin to display sound fundamentals. According to panelists at the InterFace Houston Office Forecast, that’s not likely to happen before 2020. The event was held Thursday, Feb. 1 at the Royal Sonesta hotel in Houston. Approximately 150 industry professionals attended the …

February 5, 2018

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