CRE and the National Economy, by Transwestern
Five years into the recovery, economic indicators are mixed, and the economy remains tepid. The June edition of Transwestern’s The Briefing: The National Economy at a Glance offers insights into what this means for commercial real estate.
“Despite a very positive U.S. jobs report,” the briefing begins, “there is a growing concern that the recovery is in a stall. Investors have responded by fleeing to the relative safety of bonds, causing interest rates to fall,” the exact opposite of expectations. Yet, this situation bodes well for commercial real estate, which presents an attractive alternative for investors.
“Both debt and equity markets remain highly liquid and competitive,” the briefing continues, “as CRE continues to offer attractive yields to income-oriented investors and an opportunistic upside for those looking for higher return/risk investments.”
CRE sales volume increased 20 percent in 2013 to $360 billion; CRE prices rose another 15 percent in the first quarter of 2014. Banks increased their CRE lending in 2013 to $100 billion, up 76 percent from 2012 but still below the $109 billion loaned in 2007. And more “senior lenders, particularly banks, are relaxing curbs on mezzanine debt because restrictions were costing them loans, as borrowers turned to more tolerant non-banks.” Non-bank lending from mortgage REITs, other REITs, pension funds and other investment funds continues to grow; “private equity fund-raising also remains robust.”
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