Banks and alternative lenders are not shying away from commercial real estate debt in the tail end of this cycle. Flickr/401(K) 2012 Lending continued to climb moderately in the second quarter, thanks in part to a large jump in commercial mortgaged-backed securities debt. Capital markets remain favorable, pushing lending volume up across all major groups, CBRE reports. CMBS issuance jumped in Q2 to $38.8B year-to-date, well above the $30.7B in CMBS debt issued at the same period last year. “The overall lending environment is well supplied with debt capital from all sources; CMBS, life companies, banks and alternative lenders are all actively issuing bridge and permanent financing quotes,” CBRE Capital Markets Global President Brian Stoffers said in a statement. “The recent surge in CMBS mortgages demonstrated that these lenders are becoming increasingly comfortable with risk-retention rules that kicked in at the end of last year.”
According to CBRE, commercial real estate lending in the U.S. continued to grow in Q2 2017, led by a surge in CMBS mortgages.
Despite an increase in short-term interest rates by the Federal Reserve in June, capital markets remained favorable in Q2 2017, with rising equity prices, tight spreads and limited volatility.
The CBRE Lending Momentum Index, which tracks the pace of U.S. commercial loan closings, shows that loan closings edged higher between March and June, and are 27% above the year-earlier level. Volume improved across all major lending groups, as capital is readily available, with CMBS conduits leading all other lenders in terms of market share.
Reflecting the favorable capital market environment, CMBS issuance revived in Q2 2017, lifting year-to-date issuance to $38.8 billion and well ahead of 2016’s pace of $30.7 billion. CMBS conduits accounted for 36% of non-agency origination activity in Q2 2017, well above their 16% market share in Q1 2017 and 10% market share a year earlier. While the increase included a large Manhattan office loan in Q2 2017, it generally reflects stronger industry wide CMBS origination volumes.
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Traditional lenders like banks and insurance companies have slowed their commercial real estate lending activity, and experts foresee the trend continuing well into 2017.
Lending was down 3% last year from 2015 levels, and lenders closed $491B worth of mortgage loans in 2016, according to new statistics from the Mortgage Bankers Association. The slowdown in lending was spurred by fewer property transactions taking place in need of loans, and the downtrend is expected to continue this year as investors grow increasingly cautious in their dealings. Investors spent 10% less on U.S. commercial properties during the first two months of 2017 than they did during the same period a year ago, the Wall Street Journal reports, and experts attribute the decline to rising property prices. One sector that is seeing a marked decline in lending activity due to fewer deals and tighter standards is retail. Equity Group Investments chairman Sam Zell recently said commercial real estate is overpriced, making it hard for buyers to justify entering the market. And with the sector experiencing an excess of bankruptcies and massive job cuts, mall landlords are finding it more difficult to secure loans.
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Cybersecurity and data privacy have not traditionally been high on the list of concerns for commercial real estate firms. Key developments in CRE, advances in technology, and a continuing proliferation of cyber threats, however, are changing that. Data breaches like those experienced by Essex Property Trust and Fidelity National Financial confirm that the CRE sector is not immune from the dangers posed by cyber criminals seeking to steal personally identifiable information (“PII”). And as CRE firms increase their use of internet-connected technologies in building systems, they must contend with “cyber-physical” risk – risk of property damage or bodily injury that is created by cybersecurity threats to those building systems.
These risks can lead to potentially enormous legal and financial exposure for CRE firms: according to the 2016 version of an oft-quoted annual study conducted by the Ponemon Institute LLC and sponsored by IBM, the average total cost of a data breach for companies in the United States is currently $7.01 million. That total cost can include investigation and remediation costs, legal expenditures and regulatory fines, among others.
Total elimination of this legal and financial exposure arising from cybersecurity and data privacy risk is impossible. But by taking proactive steps to identify, mitigate and manage its cybersecurity and privacy risk, an organization can substantially reduce both the likelihood and impact of cybersecurity and data privacy incidents. This two-part series will describe 10 concrete actions any CRE organization can take to better position itself to weather the next cybersecurity storm.
The focus in commercial real estate finance is often on big national banks like JP Morgan or big foreign ones like Deutsche Bank, but it would be a mistake to overlook the Southern lender that’s been making waves in the commercial real estate industry, bringing a little bit of the Ozarks to the world of high finance.
Bank of the Ozarks, based in Little Rock, Ark., broke into CrediFi’s ranking of the top 10 New York City lenders in the fourth quarter of 2016 with over $500 million in loan originations and a 3.0 percent market share.
The bank had previously made the list in the first quarter of 2016, ranking as No. 7, with over $400 million in financing and a 2.4 percent share of New York City’s commercial real estate market, but dropped from the top 10 list in the second and third quarters.
(Bloomberg)—Sears Holdings Corp. suffered its worst stock decline in six weeks after acknowledging “substantial doubt” about its future, raising fresh concerns about whether a company that was once the world’s largest retailer can survive.
Sears added so-called going-concern language to its latest annual report filing, suggesting that weak earnings have cast a pall on its ability to keep operating. The 131-year-old department-store chain, which has lost more than $10 billion in recent years, was cited last year by Fitch Ratings as a company at high risk of defaulting.
The disclosure comes after more optimistic signs from the company, which has been working on a turnaround under Chief Executive Officer Eddie Lampert. Sears posted a narrower loss than predicted in the fourth quarter, and it has pledged to lower its debt burden and cut annual expenses by at least $1 billion. That upbeat assessment had helped propel the stock in recent weeks. The shares had gained more than 60 percent since Feb. 9.
San Francisco-based AlphaFlow has launched the first automated real estate investment service of its kind. The firm, which specializes in passive online real estate investment, now offers AlphaFlow Managed Portfolios — where it will build, manage and rebalance a portfolio of 75 to 100 real estate loans for investors. It is basically a “set it and forget it” service for real estate investors. “For the first time, investors can 100% passively invest in a diversified real estate portfolio at any time. It is ultimately a simpler, more intelligent way to invest in real estate,” AlphaFlow CEO Ray Sturm said. “Our investors were happy with their returns, but we weren’t meeting all of their needs, so we stepped back and designed a new platform from the ground up.”