Commercial Investment Real Estate May/June 2017 - Page 38

“There are so many moving parts right now that it is going to keep a lot of people guessing on where we think things will shake out this year.” —Steven R. Reynolds, CCIM In addition, the strong investor appetite to acquire quality assets will help to sustain cap rates in some markets. “Buy- ers, at least for now, are willing to absorb a slightly lower return on equity, especially if they can acquire a quality asset,” Reynolds says. Usually, rates go along with some level of economic growth or infl ation, and that means that most businesses and properties are doing a little bit better, notes Jim Wilkie, CCIM, a senior vice president at Seacoast Commerce Bank in Magnolia, Texas. That being said, talk of higher inter- est rates ahead has borrowers keenly focused on capital costs and what that means for new investments. Borrowers are more concerned about what the rate is, what their rate options are, what the rate lock is, and how long they can lock that rate prior to closing, he says. Seacoast Commerce Bank is one of the top Small Business Association real estate lenders in the country and is active throughout the western half of the U.S. Wilkie is seeing strong activity for all types of retail, medical, and industrial properties in his region, which includes Houston and central Texas. Few places in the commercial market lock a rate more than about fi ve years, especially for small balance loans. “I have not seen that quarter to half percent perceived increase in rate slow anything down,” Wilkie says. “At some level it will, but I have not seen that happening yet.” Readily Available Capital Overall, good liquidity from capital sources continues across the board, including bank and nonbank lenders such as life insurance companies, private equity funds, and Fannie Mae and Freddie Mac. CMBS also has adapted to new risk-retention rules that went into effect at the end of 2016 and is refi lling its pipeline. The looming wall of maturities has continued to shrink. While there may be some shake-out of lingering problem loans, most borrowers are fi nding ample capital for acquisi- tions and refi nancing. The Mortgage Bankers Association is projecting a steady pace of commercial and multifamily mortgage originations, with a growth rate of 4 percent to $537 billion in 2017, fol- lowed by another 2 percent increase in 2018 to $546 billion in originations. Yet there are signs that lending and underwriting is tightening, notably on loans where lenders are concerned Commercial Real Estate Investment Transactions Americas Europe, the Middle East, and Africa Asia Pacifi c Transactions (US $ Billions) Rolling Total (US $ Billions) $300 $1,000 250 800 200 600 Rolling 12 month total 150 400 100 200 50 0 0 Q1 — Q4 Q1 — Q4 Q1 — Q4 Q1 — Q4 Q1 — Q4 Q1 — Q4 Q1 — Q4 Q1 — Q4 Q1 — Q4 Q1 — Q4 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: CBRE Research Q4 2016, Real Capital Analytics Note: Investment volumes can be measured with or without entity level transactions with equal validity. In this report, Real Capital Analytics and CBRE include entity-level transactions. 36 May | June 2017 COMMERCIAL INVESTMENT REAL ESTATE