Earlier this month, I attended the CREFC Industry Leaders Conference, in Miami. It was a strong event and boasted the best attendance this annual industry gathering has seen since the recession. This is one of the most important national meetings in commercial real estate, forecasting what the future could bring in the financial arena. We were lucky to inform industry leaders about our Global Services Connection, which provides one contact point for environmental, property condition/construction due diligence, to Title Services, ALTA Surveys and select to financial advisory services.
Among the myriad topics discussed at the CREFC conference, and conversations I had with clients, here are some takeaways from the show:
- There wasn’t much talk of a bubble in the multifamily sector due to over building. But multifamily asset sales is becoming super exclusive in top-tier high-population cities, like San Francisco, Los Angeles, New York City and Chicago. We are regularly seeing a record prices being paid for a high-rise condos unit in New York City. From a CMBS and portfolio lender standpoint, discussions were frequent about whether these high sales prices were sustainable and if there is enough product out there to do the kind of volume needed to do to keep the machine running. Most lenders seemed to indicate it will be a flat market in 2016, which would be the first time since the crash that it didn’t increase year over year.
- The general tenant of the conference was muted. While it’s tough to be downtrodden at an industry reception in Miami Beach, everyone realizes that it will be a dogfight to get to 2015’s levels. I don’t think anyone in the position of issuing CMBS think they’re going to seen a double-digit percent increase this year. Profitability needs to increase for these groups to continue to survive, and five-percent growth would be considered pretty positive.
- Banks, life-insurance companies, as well as private-equity and debt funds will be strong capital providers this year and be very active competing with conduit lenders.
- As far as an interest-rate bump stalling things, most commercial real estate pros see it as an overdue adjustment, and don’t think it’s going to have a huge impact on overall volume. Global geopolitical strife and continued spread volatility makes it difficult to time CMBS issuance, and if it’s going to be profitable as projected.
- There was concern about the new regulations coming into play in 2016; Basel III, SEC Reg AB and Dodd-Frank risk retention requirements. There was much talk about these regulations categorizing deals as High Volatility CRE loans (with associated lender reserve requirements), risk retention provisions for loan issuers and the requirement for a chief executive to certify knowledge of material components of each loan in a CMBS pool. They’re still going to take that medicine, but it puts a bit of a chill on their ability to execute on these deals. This will make the B-piece buyers a an increasingly important player in securitizing loans. It’s a lot of change to absorb in one year, and still keep the conduit process marching forward.
The good news, I think, is that the CMBS sector thrives on it’s ability to innovate and recast it self in a changing regulatory climate. Real estate metrics continue to indicate strong fundamentals for 2016. GRS Group is looking forward to industry leaders returning from the Mortgage Banks Association conference in Orlando next week, ready to work through the bumps ahead and collaborate on smart and profitable deals.