2016 Commercial Lending Trends Survey
-
Upload
national-association-of-realtors -
Category
Documents
-
view
218 -
download
0
Transcript of 2016 Commercial Lending Trends Survey
-
8/18/2019 2016 Commercial Lending Trends Survey
1/31
COMMERCIAL REAL ESTATE
LENDING TRENDS 2016
National Association of REALTORS®
-
8/18/2019 2016 Commercial Lending Trends Survey
2/31
-
8/18/2019 2016 Commercial Lending Trends Survey
3/313
ATIONAL ASSOCIATION OF REALTORS ®
16 OFFICERS
resident
om Salomone
resident-Elect
l Brown
rst Vice President
zabeth Mendenhall, GRI, ABR, ABRM,
PS, CRB, PMN
easurer
chael McGrew, CRB, CRS
mmediate Past-President
hris Polychron, CIPS, CRS, GRI
ce President
chael Labout, GRI
ce President
herri Meadows, GRI, CIPS, CRB, PMN
hief Executive Officer
ale Stinton, CAE, CPA, CMA, RCE
COMMERCIAL REAL ESTATE LENDING TRENDS 2016
NATIONAL ASSOCIATION of REALTORS®
-
8/18/2019 2016 Commercial Lending Trends Survey
4/31
-
8/18/2019 2016 Commercial Lending Trends Survey
5/315
INTRODUCTION1
-
8/18/2019 2016 Commercial Lending Trends Survey
6/31
INTRODUCTION
Commercial real estate (CRE) notched another year of growth in 2015, favored by
continued macroeconomic growth and broadening capital markets, according to th
Expectations & Market Realities in Real Estate 2016: Navigating through the
Crosscurrents report, released by Deloitte, the National Association of REALTORS®,and Situs RERC. While global economies decelerated, leading to volatility in financi
indices, U.S. gross domestic product rose, employment growth accelerated toward
the tail end of the year, and housing prices reached new heights. In addition, the
Federal Reserve signaled a shift in its monetary policy by raising its target funds rat
as core inflation hovered around its target of 2.0 percent.
Commercial vacancy rates declined for the core property types. Availability is
expected to continue contracting for office, industrial and retail properties in 2016
Vacancies for apartments are estimated to rise, due to gains in supply. Commerciarents have risen across the board, and are projected to advance this year in the 2.5
percent to 4.0 percent range.
CRE sales volume continued its positive trend in 2015, with $534 billion in closed
transactions, compared with $432 billion in 2014, based on data from Real Capital
Analytics (RCA). Most of the transactions reported by RCA are based on data
aggregated at the top end of the market—above $2.5 million.
In contrast to the large commercial transactions reported by RCA, commercial
REALTORS® managed transactions averaging $1.8 million per deal, frequently
located in secondary and tertiary markets, and focused on small businesses and
entrepreneurs. The 2016 Commercial Real Estate Lending Trends shines the
spotlight on this significant segment of the economy—a segment which tends to b
somewhat obscured by reports on Class A trophy commercial properties.
Lending conditions in REALTOR® markets notched another year of sustainable
recovery. As CRE asset prices strengthened, financing and lending conditions
improved in 2015. The main sources of capital for commercial REALTORS®’ clients
remained local and regional banks, which made up 55.7 percent of funding in 2015
The incidence of failed transactions, due to lack of financing, reached a new low.
REALTORS® cite uncertainty from legislative and regulatory initiatives as the most
relevant cause of bank capital shortage for CRE.
6
EORGE RATIUector, Quantitative &
mmercial Research
COMMERCIAL REAL ESTATE LENDING TRENDS 2016
NATIONAL ASSOCIATION of REALTORS®
-
8/18/2019 2016 Commercial Lending Trends Survey
7/317
ECONOMIC OVERVIEW2
-
8/18/2019 2016 Commercial Lending Trends Survey
8/318
ONOMIC OVERVIEW
oss Domestic Product
oking at macroeconomic performance through
e lens of the Gross Domestic Product (GDP), U.S.
onomic activity grew at a moderately positive 2.4
rcent in 2015, on par with the prior year. Thisarks the seventh year of post-recession economic
owth. However, with the fourth quarter’s growth
tching a mere 1.4 percent gain, it also marks
other year of subpar performance, considering
at long-term GDP growth has averaged 3.0
rcent. Nonetheless, in the context of the global
onomic landscape—especially as illustrated by
cent market gyrations—the U.S. economy
ntinued to be a comparatively bright spot.
oss domestic product had a slow start in the first
arter of 2015, with a slight 0.6 percent increase.
onomic activity picked up in the second quarter,
GDP rose at an annual rate of 3.9 percent.
wever, financial markets’ gyrations—predicated
the global slowdown—led to lost momentum
d the third quarter posted an increase of 2.0
rcent.
e changes in GDP through the year were mirrored
the pattern of business investments, which felt
e impact of volatility in financial markets. Business
investments typically make up 13 – 15 percent of
GDP. Spending by companies had a moderate start
in 2015, but was followed by a solid 4.1 percent
increase in the second quarter. The third quarter
recorded slower growth, while the final quarter of
2015 witnessed a 1.9 percent decline in
nonresidential fixed investments. Toward the tail-
end of the year companies cut back on commercia
construction and equipment spending. Double-dig
cuts in purchases of transportation and other
equipment led to declines in overall equipment
investment. Spending on industrial and informatio
processing equipment remained bright spots.
Companies also slowed their investments in
intellectual property products—software, R&D,along with entertainment, literary and artistic
works.
International trade continued to play an increasing
role in the U.S. economy. While the Great Recessio
clearly impacted the pace of trade, the subsequen
rebound had been positive, aided for a while by a
soft U.S. dollar, which drove marked growth in U.S.
exports and a contraction in the balance of trade.
However, in 2015, international trade felt the
impact of the stronger dollar, which reached its
highest point since 2004. U.S. exports rose at a
modest 1.1 percent in 2015, while imports
advanced 4.9 percent, keeping the balance of trad
2 0 0 1
2 0 0 2
2 0 0 3
2 0 0 4
2 0 0 5
2 0 0 6
2 0 0 7
2 0 0 8
2 0 0 9
2 0 1 0
2 0 1 1
2 0 1 2
2 0 1 3
2 0 1 4
2 0 1 5
2 0 1 6
2 0 1 7
Exhibit 2.1: Real GDP (% Annual Chg.)
Source: NAR, BEA
-30
-20
-10
0
10
20
2 0 0 1
2 0 0 2
2 0 0 3
2 0 0 4
2 0 0 5
2 0 0 6
2 0 0 7
2 0 0 8
2 0 0 9
2 0 1 0
2 0 1 1
2 0 1 2
2 0 1 3
2 0 1 4
2 0 1 5
Exhibit 2.2: Real GDP Business Investments
(% Annual Chg.)
Structures Equipment Intellectual Property
Source:
COMMERCIAL REAL ESTATE LENDING TRENDS 2016
NATIONAL ASSOCIATION of REALTORS®
-
8/18/2019 2016 Commercial Lending Trends Survey
9/319
a negative $544 billion for the year. The
wdown in exports notwithstanding, international
de proved positive for the industrial real estate
ctor, driving demand for space and leading to
ong investor interest.
vernment spending, another major GDP
mponent, saw a modest 0.7 percent annual gain
ring 2015. Most of the gain came from higher
ending by state and local governments, which
ve enjoyed rising property tax revenues. The
deral government cut its spending by 0.3 percent
ring the year, as defense spending retrenched.
nsumers continued as the main engine of
onomic activity in 2015, with consumer spending
mprising 68.0 percent of total GDP. Consumer
penditures rose during each quarter of 2015,
ng from an annual rate of 1.8 percent in the first
arter to 3.6 percent and 3.0 percent in the second
d third quarters. However, the fourth quarter—hich includes the traditional holiday shopping
ason—recorded a slower 2.5 percent advance. On
ance, consumers spent more on a broader array
goods and services in 2015. Buoyed by declining
soline prices—which dipped to $53 per barrel by
cember—consumers purchased more cars. Auto
es reached an annual level of 17 million vehicles
the end of the year. In addition, rising
0
0
0
0
0
0
0
0
0
0
2 0 0 1
2 0 0 2
2 0 0 3
2 0 0 4
2 0 0 5
2 0 0 6
2 0 0 7
2 0 0 8
2 0 0 9
2 0 1 0
2 0 1 1
2 0 1 2
2 0 1 3
2 0 1 4
2 0 1 5
Exhibit 2.3: Real Net Exports (Bil Chn2009$)
Source: BEA
0
5000
10000
15000
20000
2 0 0 1
2 0 0 2
2 0 0 3
2 0 0 4
2 0 0 5
2 0 0 6
2 0 0 7
2 0 0 8
2 0 0 9
2 0 1 0
2 0 1 1
2 0 1 2
2 0 1 3
2 0 1 4
Exhibit 2.4: Real Consumer Spending (BilChn 2009$)
GDP Consumer Spending
Source:
employment and higher household wealth
encouraged consumers to spend more on
household appliances, furnishings, clothing, but als
more discretionary items like recreation and
recreation vehicles.
COMMERCIAL REAL ESTATE LENDING TRENDS 2016
NATIONAL ASSOCIATION of REALTORS®
-
8/18/2019 2016 Commercial Lending Trends Survey
10/3110
Over the same 2009-15 period, America’s
population rose by over 17 million. Even accountinfor an average of 2.5 persons living in one housing
unit, about 7 million new homes would have been
required to meet demand.
In addition, the historical household formation
numbers corroborate the gap in the market. Over
the long-term, the U.S. economy has recorded an
average of 1.5 million new households per year. Th
number dropped significantly during the Great
Recession, but it has been moving toward its long-
term trend.
In turn, home prices have been rising at a healthy
clip over the past few years. The price appreciation
has been a boon for homeowners, boosting their
wealth. In fact, household wealth tied to real estat
reached $22.0 trillion in the fourth quarter of 2015
with owners’ equity totaling $12.5 trillion, closing
on the prior peak achieved in the early 2006.
However, this has broadened the divide between
homeowners and renters. For consumers who
participate in real estate markets, the recovery has
been positive, leading to an improved outlook. For
consumers who are not participating in the market
income is the main measure of economic well-
being, and wages have been rising only about 2.0
percent on a yearly basis.
using
e housing recovery led the way during 2015. With
e annual pace of existing home sales above 5.0
llion, housing supply shrank and hovered below
long-term equilibrium of 6 – 7 months. At the
d of December 2015 there were 1.8 million
mes available for sale, down 5.4 percent fromeady low levels in the prior year. Given the
gher-than-usual sales pace in December, owing to
e unseasonably warm weather, the measure of
onths’ supply fell to 3.9 months, one of the
nnest levels of inventory recorded in the past 15
ars.
de from an increase in sales, the steady drop in
tressed properties over the past seven yearsupled with underproduction of new homes has
acerbated the inventory situation. Distressed
operties accounted for only 6.0 percent of total
es at the tail end of 2015, down from over 40.0
rcent in 2008-09.
e supply of new homes has averaged about
0,000 units per year since 2008. In fact, from
09 to 2015, a total of 5.6 million single-family
mes, condominiums, and apartment units were
ilt. Over the same period, approximately 1.7
llion housing units were demolished and removed
m the housing stock, as they were uninhabitable
obsolete. For the period, there were a net 3.9
llion housing units added to the country’s stock.
2 0 0 0
2 0 0 1
2 0 0 2
2 0 0 3
2 0 0 4
2 0 0 5
2 0 0 6
2 0 0 7
2 0 0 8
2 0 0 9
2 0 1 0
2 0 1 1
2 0 1 2
2 0 1 3
2 0 1 4
2 0 1 5
Exhibit 2.5: NAR Months' Supply of Existing
Homes
Source: NAR
-500
0
500
1000
1500
2000
2500
2 0 0 0
2 0 0 1
2 0 0 2
2 0 0 3
2 0 0 4
2 0 0 5
2 0 0 6
2 0 0 7
2 0 0 8
2 0 0 9
2 0 1 0
2 0 1 1
2 0 1 2
2 0 1 3
2 0 1 4
Exhibit 2.6: Completions & Household
Formation
New Housing Completions ('000s)
Household Formation ('000s)
Source: Census Bur
COMMERCIAL REAL ESTATE LENDING TRENDS 2016
NATIONAL ASSOCIATION of REALTORS®
-
8/18/2019 2016 Commercial Lending Trends Survey
11/3111
As of the end of 2015, 94.1 million Americans 16
years and older were not in the labor force, of whi
1.8 million were estimated to want a job; this is in
addition to the 7.9 million Americans currently in
the labor force but unemployed. Even as the U.S.
population continues to grow and the Millennialsbecome the largest demographic cohort, retiring
Baby Boomers, and a low or contracting
participation rate will likely hold back economic
potential.
mployment
yroll employment closed the year on a positive
te, with almost 3.0 million net new jobs. Payroll
mployment rose at the strongest pace in the last
arter of the year, adding 837,000 new jobs. The
ctors with the largest gains were in the Education
Health, Professional & Business Services, andsure & Hospitality industries. With employers in
ese sectors growing, demand for commercial
operties has been on the upswing, leading to
wer vacancies and improved cash flows. The
employment rate declined from 5.6 percent in
e first quarter 2015 to 5.0 percent by the close of
e year. The average duration of unemployment
clined from 31 weeks in the first quarter to 28
eeks by the end of 2015.
wever, it is worth pointing out that there is a
ud casting a long shadow over the employment
dscape. The labor force participation rate rosem 58.0 percent in the late 1940s to over 67
rcent by the early 2000s, as women entered the
bor force in large numbers. The figure has been
clining over the past 15 years, but the decline
celerated during the Great Recession, and
ached 62.6 percent in December of 2015, the
me level as seen in the late 1970s.
00
00
00
00
00
0
00
00
2 0 0 7
- J a n
2 0 0 7
- A u g
2 0 0 8
- M a r
2 0 0 8
- O c t
2 0 0 9 - M a y
2 0 0 9
- D e c
2 0 1 0 - J u l
2 0 1 1
- F e b
2 0 1 1
- S e p
2 0 1 2
- A p r
2 0 1 2
- N o v
2 0 1 3
- J u n
2 0 1 4
- J a n
2 0 1 4
- A u g
2 0 1 5
- M a r
2 0 1 5
- O c t
Exhibit 2.7: Payroll Employment (Change,
'000)
Source: BLS
62
63
64
65
66
67
68
2 0 0 1 - J a n
2 0
0 1 - N o v
2 0
0 2 - S e p
2
0 0 3 - J u l
2 0 0 4 - M a y
2 0
0 5 - M a r
2 0 0 6 - J a n
2 0
0 6 - N o v
2 0
0 7 - S e p
2
0 0 8 - J u l
2 0 0 9 - M a y
2 0
1 0 - M a r
2 0 1 1 - J a n
2 0
1 1 - N o v
2 0
1 2 - S e p
2
0 1 3 - J u l
2 0 1 4 - M a y
2 0
1 5 - M a r
Exhibit 2.8: Labor Force Participation Rate
Source: B
COMMERCIAL REAL ESTATE LENDING TRENDS 2016
NATIONAL ASSOCIATION of REALTORS®
-
8/18/2019 2016 Commercial Lending Trends Survey
12/31
Exhibit 2.10: U.S. Economic Outlook—March 20
2014 2015 2016 20
Annual Growth Rate, %
Real GDP 2.4 2.4 1.6 2.
Nonfarm Payroll
Employment 1.9 2.1 1.4 1.
Consumer Prices 1.6 0.2 1.8 3.
Level
Consumer Confidence 87 98 95 10
Percent
Unemployment 6.2 5.3 4.8 4.
Fed Funds Rate 0.1 0.1 0.8 1.
3-Month T-bill Rate 0.1 0.1 0.6 1.
Corporate Aaa Bond Yield 4.2 3.9 4.2 4.
10-Year Gov’t Bond 2.5 2.1 2.1 2.
30-Year Gov’t Bond 3.3 2.8 3.1 3.Source: National Association of REALTORS®
12
Owners’ Equivalent Rent component of the
Consumer Price Index having increased at over 3.0
percent in 2015, consumer prices are projected to
notch up in the short to medium term
Outlook
The outlook for the remainder of 2016 remains
moderately positive, with GDP projected to close
the year 1.5 percent higher on an annual rate.
Payroll employment is expected to advance at an
annual rate of 1.3 percent. With the Federal Reserv
expected to continue increasing the funds target
rate, U.S. inflation is expected to remain below 2.0
percent in 2016.
Household formation—an important driver of
economic growth—has been rebounding toward it
long-term trend. While in 2015 household
formation advanced at a rather moderate pace of
191,000 new households, we expect it to continue
advancing over the next few years as Millennials—
currently considered the largest generational
segment of the U.S. population—mature and ente
the workforce in larger numbers.
onetary Policy
arkets spent the better part of last year trying to
ad the Federal Reserve’s decision on the funds
get rate. During the summer, the concern focused
the September meeting of the Federal Open
arket Committee meeting, which did not result in
ate hike. Mid-December brought a much-ticipated change, ending the Fed’s
commodative policy with a 25 basis point hike. Of
urse, since then, financial markets have been
ing a wild roller coaster, leading some to question
e timing of the Fed’s decision.
nger-dated bond yields had not moved up
easurably despite the Federal Reserve rate hike.
r commercial real estate investors the spread
tween the 10-year Treasury Note yields and cap
es remained at over 400 basis points. However,
th interest rates expected to rise, commercial
ce appreciation is expected to moderate.
spite earlier concerns about the potential forlation, 2015 recorded low inflationary pressure
e in large part to declines in prices of gasoline
d other energy products. Deflationary pressures
e expected to subside in 2016, as gasoline prices
l likely stabilize.
addition, with apartment rents having risen at 4.0
rcent or better over the past few years, and the
2 0 0 0
2 0 0 1
2 0 0 2
2 0 0 3
2 0 0 4
2 0 0 5
2 0 0 6
2 0 0 7
2 0 0 8
2 0 0 9
2 0 1 0
2 0 1 1
2 0 1 2
2 0 1 3
2 0 1 4
2 0 1 5
2 0 1 6
Exhibit 2.9: FOMC Fed Funds Target Rate
(%)
Source: Federal Reserve Board
COMMERCIAL REAL ESTATE LENDING TRENDS 2016
NATIONAL ASSOCIATION of REALTORS®
-
8/18/2019 2016 Commercial Lending Trends Survey
13/31
COMMERCIAL REAL ESTATE
13
3
-
8/18/2019 2016 Commercial Lending Trends Survey
14/3114
OMMERCIAL REAL ESTATE
ndamentals
mmercial real estate continued on an upward
jectory in 2015, building on improving
ndamentals and investment momentum. In
ndem with rising economic conditions, leasingengthened during the year. Growing net
sorption led to declining vacancies and
celerating rent growth. As employment gains are
pected to continue into 2016, demand for
mmercial space is expected to advance.
ofessional and business services added the
ghest number of net new jobs in 2015. The
proving employment landscape in office-usingdustries drove demand for office space. Almost
f of office leasing activity during the year was
ade up of company expansions, a positive
velopment. Even with 44.2 million square feet of
w supply, office vacancy declined 40 basis points
ar-over-year, to the lowest level in eight years—
.7 percent by the fourth quarter. Rents for office
operties rose 2.2 percent during the fourth
arter, to $31.26 per square foot, according to JLL.
dustrial properties found favorable conditions in
15 due to international trade and solid gains in
line retail sales. National vacancies for industrial
ildings dropped in the single digits during the
ar, leading to higher rents.
t absorption of industrial space totaled 231.2
llion square feet in 2015, based on data from JLL.
th new supply clocking in at 177.3 million squareet, availability rates declined to 6.4 percent by the
urth quarter. Industrial rents rose 5.6 percent
er the year, to an average of $4.93 per square
ot.
th consumers keeping spending on an upward
jectory, the retail sector recorded positive
mand matched by restrained supply, leading to
clining vacancies and moderately growing rents.
Retail net absorption totaled 88.3 million square
feet in 2015, according to JLL. Constrained new
supply in high-demand areas lowered vacancies to
5.7 percent by the last quarter of the year. Rentsincreased 2.1 percent during the year, to an averag
$15.84 per square foot.
Demand for multifamily properties continued on a
upward path. Renter occupied housing units totale
42.6 million units in the fourth quarter of 2015, a
300,000 unit advance from the fourth quarter of
2014, based on U.S. Census Bureau data. National
vacancy rates averaged 7.0 percent for rentalhousing during the fourth quarter, unchanged from
the same period in 2014. Median rents for rental
units averaged $850 by the end of the year.
COMMERCIAL REAL ESTATE LENDING TRENDS 2016
NATIONAL ASSOCIATION of REALTORS®
-
8/18/2019 2016 Commercial Lending Trends Survey
15/3115
In comparison to the high-end deals, 82.7 percent
commercial REALTORS® reported transactions belo
the $2.0 million threshold in 2015. Although many
REALTORS® participate in transactions above $2.5
million per deal, they frequently serve a segment o
the commercial real estate market for which dataare generally not as widely reported, which we ter
the small CRE transactions (SCRE).
Based on National Association of REALTORS® (NAR
data for the SCRE market, sales volume increased
20.5 percent on a yearly basis in 2015. The strong
increase mirrored the renewed investor interest in
stabile markets and properties offering higher
yields. Prices for REALTORS® commercial
transactions advanced 8.5 percent year-over-year,
slower pace than in LCRE transactions. The data
underscore an important point about the recovery
and growth in SCRE markets. The rebound in
smaller markets was delayed by three years and thrate of price growth has been shallower.
In 2015, inventory shortage dominated the list of
concerns for SCRE markets. Cap rates averaged 7.8
percent over the year, a 40 basis point decline from
2014. Yields in SCRE markets continued to offer a
premium compared with the 6.5 percent average
recorded in LCRE transactions during the year.
vestments
mmercial real estate (CRE) investment trends
ere positive in 2015, following on last year’s tail
nds. Sales of large CRE transactions (LCRE)—over
.5M—advanced 23 percent year-over-year,
taling $534 billion, based on data from Real
pital Analytics (RCA). Investor demand foroperties continued on an upward path, as
onomic fundamentals, broadening lending
urces and capital followed returns. Prices for
mmercial assets reached new records, surpassing
or 2007 peaks. Based on RCA’s Commercial
operty Price Index, commercial prices rose 12.3
rcent in 2015 compared with the previous year.
pitalization rates averaged 6.5 percent during the
ar across all property types, a 16 basis pointcline year-over-year.
th global economies hitting a slow patch in 2015,
S. property markets became an even strongerntender for cross-border investors, as well. Top-
r markets in gateway cities continued as the
ajor targets of investor activity. However, posting
gher yields and strengthening economies,
condary and tertiary markets remained on the list
investor destinations during the year.
0
20
4060
80
100
120
140
$-
$50
100
150
200
2 0 0 6 Q 1
2 0 0 6 Q 4
2 0 0 7 Q 3
2 0 0 8 Q 2
2 0 0 9 Q 1
2 0 0 9 Q 4
2 0 1 0 Q 3
2 0 1 1 Q 2
2 0 1 2 Q 1
2 0 1 2 Q 4
2 0 1 3 Q 3
2 0 1 4 Q 2
2 0 1 5 Q 1
2 0 1 5 Q 4
Exhibit 3.1: CRE Sales Volume & Prices
($2.5M+)
Sales Volume CPPI
Source: Real Capital Analytics
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
2 0 0 8 . Q 4
2 0 0 9 . Q 2
2 0 0 9 . Q 4
2 0 1 0 . Q 2
2 0 1 0 . Q 4
2 0 1 1 . Q 2
2 0 1 1 . Q 4
2 0 1 2 . Q 2
2 0 1 2 . Q 4
2 0 1 3 . Q 2
2 0 1 3 . Q 4
2 0 1 4 . Q 2
2 0 1 4 . Q 4
2 0 1 5 . Q 2
Exhibit 3.2: REALTOR® CRE Markets (YoY
% Chg)
Sales Volume Prices
Source: N
COMMERCIAL REAL ESTATE LENDING TRENDS 2016
NATIONAL ASSOCIATION of REALTORS®
-
8/18/2019 2016 Commercial Lending Trends Survey
16/3116NATIONAL ASSOCIATION of REALTORS®
Government-sponsored enterprises (GSEs) were th
third largest debt holder, with 12.0 percent of tota
dominating the financing in the multi-family
segment. Life insurance companies continued as
active participants in debt markets, accounting for
11.0 percent of the debt universe.
On the equity side of CRE financing, where equity
investors held $2.6 trillion in assets, private equity
accounted for 43.0 percent of capital, followed by
listed and non-listed REITs, which made up 32.0
percent of financing in 2015, according to Situs
RERC. Pension funds, both domestic and cross-
border were the third largest capital provider grou
representing 14.0 percent of the equity market. Thremainder was evenly distributed between groups
comprised of life insurance companies, commercia
banks, corporations, foreign investors and others.
pital Markets
pital markets proved favorable for commercial
al estate during 2015, riding the rising tide of the
st two years. Major capital providers found new
ergy in the growing values of commercial assets
d competed for deals, leading to steep
celeration in prices for some property sectors,pecially apartments and CBD office buildings.
e U.S. investment market totaled $6.2 trillion in
15, with 57.3 percent of the figure comprising
bt-based investment assets and the remainder
counted for by equity-based properties. On the
bt side, chartered depository institutions (banks)
counted for the bulk of capital providers, with
out half the total market holdings, as the wave ofw interest rates continued through the end of the
ar. The second largest share of debt holders was
presented by commercial mortgage backed
curities (CMBS), collateralized debt obligations
DOs), and other asset backed securities (ABS)
lders, making up 18.0 percent of total, based on
ta from the Federal Reserve.
Exhibit 3.3: CRE Debt Universe
U.S. Chartered
Depository Institutions
CMBS, CDO, other ABS
GSEs (Freddie, Fannie)
Life Insurance
Companies
Foreign Banking
Offices in U.S.
Other
ce: Federal Reserve Board
Exhibit 3.4: CRE Equity Investments
Private Equity
REITs
Pension Funds
Life Insurance Cos.
Commercial Banks
Corporations
Foreign Investors
Gov't, GSEs & Othe
Sources: Situs RERC, NAREIT, PREA, AFIRE, Prequin, Real Cap
COMMERCIAL REAL ESTATE LENDING TRENDS 2016
-
8/18/2019 2016 Commercial Lending Trends Survey
17/31
of REALTORS®’ commercial deals, on par with the
previous year. Private investors were the third ma
capital providers, accounting for 12.0 percent of
deals during 2015. National banks came in fourth
place, with 8.0 percent market share. The Small
Business Administration and credit unions shared aequal proportion, with 6.0 percent of the market
each. Life insurance companies were much less
active in REALTOR® markets, representing 3.0
percent of deals, while CMBS conduits accounted
for only 2.0 percent of funding, tied with REITs.
Public companies and international banks made
up about 1.0 percent of all sales.
The lending survey highlights the marked
differences in the LCRE markets versus the SCRE
markets. Debt financing represents a much-larger
portion of capital in SCRE markets, whereas LCRE
deals benefit from significant equity contributions.
For regional and community banks—which accoun
for 56.0 percent of all capital in REALTOR®
markets—compliance costs stemming from financ
17
nding
e lending landscape in large commercial real
tate (LCRE) markets broadened further in 2015,
mpared with the prior five years, as sources of
nding actively competed for deals. Based on RCA
ta, CMBS originators accounted for 21.0 percent
lending at the high end of the market.vernment-sponsored enterprises (GSEs) were the
cond largest source of lending, with 18.0 percent
total transactions, followed by national banks,
hich comprised 16.0 percent of deals. Regional
d local banks made up 15.0 percent of total
ume, while life insurance companies accounted
r 12.0 percent. Financial institutions, international
nks and private investors rounded-up the funding
urces, with 10.0 percent, 7.0 percent and 2.0rcent, respectively, of total sales.
sed on NAR’s 2016 survey data, capital markets
play a fundamentally different landscape. Local
d community banks were the largest lending
oup in REALTORS®’ commercial markets in 2015,
counting for 31.0 percent of transactions. Local
d community banks maintained market share
m 2014, when they made up 32.0 percent of the
arket. The second largest capital source in 2015
ere regional banks, which captured 25.0 percent
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2 0
1 1
2 0
1 2
2 0
1 3
2 0
1 4
2 0
1 5
2 0
1 6
Exhibit 3.6: REALTOR® CRE Lending Sources
Small Business
AdministrationREITs
Regional Banks
Public Cos.
Private Investors
Other
National Banks
Local/Comm. Ban
Life Insurance Co
International ban
Credit Unions
CMBS
Source: N
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
2011 2012 2013 2014 2015
Exhibit 3.5: RCA Lending Sources ($2.5M+)
Pvt/Other
Reg'l/Local Bank
Nat'l Bank
Int'l Bank
Insurance
Gov't Agency
Financial
CMBS
Source: Real Capital Analytics
COMMERCIAL REAL ESTATE LENDING TRENDS 2016
NATIONAL ASSOCIATION of REALTORS®
-
8/18/2019 2016 Commercial Lending Trends Survey
18/3118
nding, continued
gulations have made a stronger impact on
ailable capital for CRE deals. With higher costs of
mpliance and higher capital reserve requirements
r CRE loans, regional and community banks have
en more cautious in their lending during 2015,
sulting in tightening of capital, a reversal of thend since 2013. In 2015, 33.0 percent of
ALTORS® reported tightening lending conditions,
mpared with 22.0 percent in 2014 and 28.0
rcent in 2013.
addition, 59.0 percent of REALTORS® reported
at insufficient bank capital remains an obstacle to
es in SCRE markets. The main reason comes from
w and proposed legislative and regulatorytiatives—Dodd-Frank, lease accounting, carried
erest, etc.—which were cited by 25.0 percent of
spondents. Another 17.0 percent indicated that
gulatory uncertainty for financial institutions was
important barrier to bank lending for CRE
ojects, tied with U.S. economic uncertainty. The
rd main reason was a combination of reduced net
erating income, reduced property values and
uity.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2012 2013 2014 2015 2016
Exhibit 3.8: Causes of Insufficient Bank
Capital for CRE Lending:
Other, please spec
Global economic
uncertainty
U.S. Economic
uncertainty
Inability of banks t
dispose of distress
assetsNew/proposed US
legislative and
regulatory initiativRegulatory
uncertainty for
financial institutioSlow-down in
pooling/packaging
CMBSReduced NOI,
property values, a
equity
Source: N
59%
41%
Exhibit 3.7: Does Bank Capital for CRE
Remain Obstacle to Sales?
Yes
No
COMMERCIAL REAL ESTATE LENDING TRENDS 2016
NATIONAL ASSOCIATION of REALTORS®
-
8/18/2019 2016 Commercial Lending Trends Survey
19/3119
SURVEY HIGHLIGHTS4
-
8/18/2019 2016 Commercial Lending Trends Survey
20/3120
61% of respondents closed deals in 2015
REALTORS® closed an average of 8 commercial
nsactions
94% of sales were valued at or below $5 million
Cash comprised 26% of all transactions
61% of transactions had financing with LTV equal
or higher than 70%
17% of respondents had international
ents/investors
ales composition:
- Office CBD: 8%
- Office Suburban: 12%
- Industrial Warehouse: 14%
- Industrial Flex: 8%
- Multi-family: 15%
- Retail Strip Center: 12%
- Retail Mall: 2%
- Land: 18%
- Hotel: 2%- Other: 8%
Net operating income (NOI) of sold/leased
operties increased in 57% of markets over the
st eight years
ending conditions tightened for 33% of
spondents and eased in 31% of respondents’
arkets
ailed sales due solely to appraised values
clined from 22% in 2014 to 17% in 2015.
• Top sources of capital:
- Local/community banks: 31%
- Regional banks: 25%
- Private investors: 12%
- National banks (“Big four”): 8%
- Small Business Administration: 6%- Credit unions : 6%
- Life insurance companies: 3%
- REITs: 2%
- CMBS: 2%
- Public companies: 1%
- International banks: 0.7%
• 27% used the Small Business Administration
refinance program
• 40% of sales failed due to lack of financing
- Loan underwriting standards
caused 54% of financing failures
- 20% caused by appraisals/valuatio
- 12% due to financing availability
• 15% of deals failed to secure re-financing,
compared with 50% in the 2012 report
• Debt-to-service coverage ratio (DSCR) was 1.4.
• 59% of respondents find insufficient CRE bank
capital due to: - Legislative/regulatory initiatives: 25
- Financial regulatory uncertainty: 17
- U.S. Economic uncertainty: 17%
- Reduced NOI, values & equity: 13%
- Disposition of distressed assets: 7%
- Global economic uncertainty: 7%- Pooling/packaging of CMBS: 4%
• The main reasons for failed sales due to appraisals
- NOI (Net Operating Income): 31%
- Economic obsolescence: 15%
- Deteriorated property financials: 14
- Location obsolescence: 13%
- Zoning: 7%
- Environmental conditions: 5%
- Lack of energy efficiency: 2%
URVEY RESULTS: Highlights
COMMERCIAL REAL ESTATE LENDING TRENDS 2016
NATIONAL ASSOCIATION of REALTORS®
-
8/18/2019 2016 Commercial Lending Trends Survey
21/3121
SURVEY RESULTS5
-
8/18/2019 2016 Commercial Lending Trends Survey
22/31
-
8/18/2019 2016 Commercial Lending Trends Survey
23/3123
arket Environment
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2012 2013 2014 2015 2016
Exhibit 5.4: Change in net operating
income ($/SF) of properties sold/leased
from 4th quarter of 2007 to 4th quarter of
2015Decreased 50% - 75
Decreased 40% - 49
Decreased 35% - 39
Decreased 30% - 34
Decreased 25% - 29
Decreased 20% - 24
Decreased 10% - 19
No Change
Increased 10% - 15
Increased 5% - 9%
Increased 1% - 4%
0% 20% 40% 60% 80% 100%
Office CBD
Office Suburban
Industrial Distribution/Warehouse
Industrial Flex
Retail: Mall
tail: Neighborhood Shopping Center
Retail: Strip Center
Apartment: Market-Oriented
Apartment: Affordable
Apartment: Student Housing
Hotel
Land
Exhibit 5.5: Expectations for Cap Rate Movement in Next 2-3 Years
Lower by more than 100 bp
Lower by 50-100 bps
Lower by 1-49 bps
Same
Higher 1- 49 bps
Higher 50-100 bps
Higher by over 100 bps
ork around the country and find differences in all the
arkets, mainly due to demand not appraisals.
- Illinois
od properties, well maintained and well managed,
ll leased are not having any issues with availability of
pital, appraisals, or LTV issues (cap rates). It’s the
k some people are putting out there to slide off into
meone else's portfolio that is having a problem, and
okers are looking for someone to blame. Buyers are
t stupid.
- Kentucky
ee that buyers ask for a higher cap rate than thearket will provide.
- Montana
y answers may be regional and not applicable
tionally. However, a serious employment issue exists,
lled and unskilled, and many industrial factories than
ed to employ 50-200 people are now nothing more
an distribution centers, employing 5 people: 4 forklift
erators and 1 warehouse manager!
- Ohio
COMMERCIAL REAL ESTATE LENDING TRENDS 2016
NATIONAL ASSOCIATION of REALTORS®
-
8/18/2019 2016 Commercial Lending Trends Survey
24/3124
nding Environment
e majority of sales were financed in 2015, as cash
mprised 26.0 percent of all deals, a smaller
oportion than in 2014.
nk financing, in particular, was an importanturce of capital for commercial transactions,
mprising 64.0 percent of capital. Local and
mmunity banks played a central role, with 31.0
rcent of the market, followed by regional banks,
25.0 percent. National and international banks
counted for a combined 9.0 percent of capital.
nding conditions took a step back during the year,
cording to survey respondents. Over a third ofspondents indicated that lending conditions
perienced tightening. This change marked a shift
m the trend of the prior five years.
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
Exhibit 5.6: Change in Lending Conditions
over Past Year
Eased
Significantly
Eased Somewhat
Not Changed
Tightened
Somewhat
Tightened
Significantly
0%10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2011 2012 2013 2014 2015 2016
Exhibit 5.7: Average Loan-to-Value for CRE
Transactions
Other
100% Cas
50%55%
60%
65%
70%
75%
80%
85%90%
Many commercial real estate properties are sold at the
cap rate of below 7%. To obtain an 80% LTV loan at 5%
interest for 10 to 15 years, loan will have a debt service
of equal or greater than NOI. That has to change soon!
- Tex
The regulatory environment is making the development
and acquisition business much harder for individuals an
small to medium players to compete against REITs and
institutional investors. Reporting requirements, fees,
legal costs related to transaction size have significant
impact on the yields for smaller investments.
- Tex
Commercial loans above $1 million are available.
Commercial loans below $1 million are difficult becausethey are not handled directly by commercial loan office
Lack of experience results in a fits and starts application
process with seemingly reluctant commitment and
closing process. It is easier to get a large loan done than
a smaller loan.
- Vermo
tional lenders have best rates, but are way too
nservative. They are not lending even for well
pitalized deals.
- Wisconsin
COMMERCIAL REAL ESTATE LENDING TRENDS 2016
NATIONAL ASSOCIATION of REALTORS®
-
8/18/2019 2016 Commercial Lending Trends Survey
25/31
0%
0%
0%
0%
0%
0%
2011 2012 2013 2014 2015
Exhibit 5.10: Percent of REALTORS®
Reporting Failed Re-Financing Transaction
No
Yes
0%
20%
40%
60%
80%
100%
2016
Exhibit 5.11: Reasons for Lack of Re-
Financing Funding
Other (please specify)
Appraisal/valuation
Loan underwriting/lend
requirements
Financing availability
Local Banks are getting it done right now. Large
banks only want large deals. They are no longer
interested in small business
- Orego
Lending is still difficult unless it is an owner occupie
building or has long term leases in place.
- Pennsylvan
The Dodd-Frank act is the one greatest hindrance t
the commercial real estate market activity in the U
today. The Act constricts business and should be
eliminated.
- Colorad
25
nding Environment
dd-Frank has forced lending institutions to look
NLY at a business’s bottom line for income and only
d back in depreciation, which for LLCs and Sole
oprietors makes it almost impossible to get them
ancing for anything!
- Missouri
maller, local banks still are able to make a quicker
mmitment to borrowers.
- New York
nding problems are due to lack of quality
rrowers, not lack of capital by lending institutions.
- Oregon
0%
0%
0%
0%
0%0%
2011 2012 2013 2014 2015 2016
Exhibit 5.8: Percent of REALTORS®
Reporting Failed Sales Transaction Due to
Lack of Financing
N/A
No
Yes
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2016
Exhibit 5.9: Reasons for Lack of Financing
Other
Appraisal/valuation
Loan underwriting/lend
requirements
Financing availability
COMMERCIAL REAL ESTATE LENDING TRENDS 2016
NATIONAL ASSOCIATION of REALTORS®
-
8/18/2019 2016 Commercial Lending Trends Survey
26/3126
nding Environment
A—takes way too long, often limited knowledge
fine grain local circumstances, clients often must
able to move on their situation quickly or lose
eir opportunity. Thus there is a need for an
trepreneurial Warehouse' brain-trust to educate,oom and promote new entrepreneurs how to get
arted quickly and smoothly.
- Pennsylvania
vate Lenders and Hard Money Lenders lend
oney to Investors and they should not be restricted
the Dodd Frank Act. Commercial banks are
mited to Amounts and certain numbers of
operties a person can hold. - Arizona
ems lenders are having difficulties lending,
pecially to small and medium businesses.
- Arizona
ed further training of FDIC and OTC regulators on
e nuances of commercial real estate including
derstanding obsolescence, effects of changing
ying trends, retail uses, etc.
- California
e big banks are running freely and need to be
focused. Since they were given the second wave of
nds they have been out to close the market to all
t themselves and stay in control.
- California
ere is a concern that the regulatory environmentvery restrictive. Some commercial lenders have
pressed that they are having problems getting
ans approved.
- California
0%
20%
40%
60%
80%
100%
2011 2012 2013 2014 2015 2016
Exhibit 5.12: Involved in CRE Transaction
supported by SBA Loan
N/
No
Ye
8%
21%
6%
56%
9%
Did not know the program
existed
Burdensome application and
reporting requirements
Due to past SBA experiences
Client had other source(s) of
financing
Other, please specify
Exhibit 5.13: If answered "No“ to SBA
Loan, the reason was
The ongoing evolution of lending regulations will, overtime, change lenders from using their judgement and
relying on the numbers. Regional lenders won't be able
compete - national lenders will continue to be out of
touch. Here on the Delmarva - that's exactly opposite of
what we need to grow our economy and the next
generation of leaders.
- Maryla
COMMERCIAL REAL ESTATE LENDING TRENDS 2016
NATIONAL ASSOCIATION of REALTORS®
-
8/18/2019 2016 Commercial Lending Trends Survey
27/3127
praisals
praisals for commercial transactions notched
provement in 2015. The incidence of failed sales
e solely to appraised values declined from 22.0
rcent in 2014 to 17.0 percent in 2015. The main
prit for low appraisals is reduced net operatingome (NOI), which was cited by 31.0 percent of
ALTORS®. Economic obsolescence and
teriorating property finances were the second
d third reasons for appraisal issues. Location
solescence and zoning were reported as
oblems by 13.0 percent and 7.0 percent of
spondents, respectively.
0%
20%
40%
60%
80%
100%
2015 2016
Exhibit 5.14: Percent of REALTORS®
Reporting Transaction Failures Due to
Appraised Value
N
Y
0%
10%
20%30%
40%
50%
60%
70%
80%
90%
100%
2015 2016
Exhibit 5.15: Main Reasons for Appraisal
Problems Other
Lack of energy efficiency
Environmental condition
(air quality, contaminatio
Zoning
Location obsolescence
Economic obsolescence
Deteriorating fiscal issues
with property
NOI (Net Operating Incom
0%
20%
40%
60%
80%
100%
2015 2016
Exhibit 5.16: Mezzanine Debt Required
Due to Appraised Value Lower than Price
N
Ye
ere is a dramatic problem with how regional and
tional banks hire appraisers. There is no opportunity
proper selection by bank employees in the cities
ere the appraisals are being performed, often leading
hiring geographically incompetent individuals.
- California
ce in my state, lenders have to use an appraiser from
pool", the appraiser most of the time does not knowe area or product type.
- Illinois
e problem is lenders are concerned about finding the
eapest appraisal, which leads to lower quality work.
courage quality and be willing to pay a little more for
od work.
- Indiana
nding Officers are not allowed to select appraiser, so
e lending officer and appraiser are disconnected. That
gulatory requirement is hurting the tertiary commercial
arkets and hindering small business acquisition of real
ate.
- Tennessee
COMMERCIAL REAL ESTATE LENDING TRENDS 2016
NATIONAL ASSOCIATION of REALTORS®
-
8/18/2019 2016 Commercial Lending Trends Survey
28/3128
praisals
ALTORS® reported that most appraisers are
familiar with local markets and property types.
ly 17.0 percent indicated that appraisers are
ways” familiar, while 65.0 percent indicated
ometimes.” Familiarity with the property typeplayed a similar picture, with 63.0 percent of
spondents stating that appraisers are
ometimes” familiar, while 27.0 percent reported
at appraisers are “Always” familiar. There was a
ud casting a longer shadow over the appraisal
uation—60.0 percent of REALTORS® reported that
nders generally seek quality appraisers who are
miliar with the local market and property types.
at means that two-in-five transactions arepraised by someone who may not be familiar
th the market or the property type.
0%
20%
40%
60%
80%
100%
2015 2016
Exhibit 5.17: How Familiar Are Appraisers
with the Market?
Not sure; N/
NeverRarely
Sometimes
Always
0%
20%
40%
60%
80%
100%
2015 2016
Exhibit 5.18: How Familiar Are Appraisers
with the Property Type?
Not sure; N/
Never
Rarely
Sometimes
Always
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2015 2016
Exhibit 5.19: Do Lenders Seek Appraisers
Familiar with Market and Property Type?
N
Ye
eems that the appraisal process is flawed. We have
t of area appraisers picking from a pool of local
praisal opportunities though they are not in the least
alified to do appraisals in the those areas. For
ample, appraisers from Annapolis or Baltimore or
isbury take on appraisal jobs in areas which are over
hour or two drive away from their home offices. Theyve to see the contract before they can give a value.
hat's the point of the appraisal if they are allowed to
e the contract price and then can make the price
praisal fit that price? It's so ridiculous and wrong.
- Maryland
ere is NO shortage of appraisers at this time. If there is
hortage in the future, it will be because our fees are so
w we cannot afford to hire trainees. I stopped doing
MC work after the crash. Now I no longer need
ortgage work so it is on the "back burner". They
reased requirements and liability, but NOT the fees.
good-bye AMCs!
- Virginia
praisers are generally aware of the market they serve
wever are restricted by Federal guidelines that are
w outdated.
- Washington
COMMERCIAL REAL ESTATE LENDING TRENDS 2016
NATIONAL ASSOCIATION of REALTORS®
-
8/18/2019 2016 Commercial Lending Trends Survey
29/3129
ethodology of NAR’s 2016 CRE Lending Survey
thin the framework of improving market
nditions, the National Association of REALTORS®
nducted a national survey of commercial real
tate members, focused on lending conditions.
February and March of 2015, NAR invited a
ndom sample of 65,420 REALTORS® with an
erest in commercial real estate to fill out an
line survey. A total of 1,241 responses were
ceived for an overall response rate of 1.9 percent.
COMMERCIAL REAL ESTATE LENDING TRENDS 2016
NATIONAL ASSOCIATION of REALTORS®
-
8/18/2019 2016 Commercial Lending Trends Survey
30/31
The National Association of REALTORS®, “The Voice for Real Estate,” is America’s
largest trade association, representing over 1.1 million members, including NAR’s
institutes, societies and councils, involved in all aspects of the real estate industry.
NAR membership includes brokers, salespeople, property managers, appraisers,
counselors and others engaged in both residential and commercial real estate. The
term REALTOR® is a registered collective membership mark that identifies a real
estate professional who is a member of the National Association of REALTORS® andsubscribes to its strict Code of Ethics. Working for America's property owners, the
National Association provides a facility for professional development, research and
exchange of information among its members and to the public and government for
the purpose of preserving the free enterprise system and the right to own real
property.
NATIONAL ASSOCIATION OF REALTORS®
RESEARCH DIVISION
The Mission of the National Association of REALTORS® Research Division is to collec
and disseminate timely, accurate and comprehensive real estate data and to conduc
economic analysis in order to inform and engage members, consumers, and policy
makers and the media in a professional and accessible manner.
To find out about other products from NAR’s Research Division, visit
www.REALTOR.org/research-and-statistics.
NATIONAL ASSOCIATION OF REALTORS®
RESEARCH DIVISION
500 New Jersey Avenue, NW
Washington, DC 20001
202.383.1000
30
COMMERCIAL REAL ESTATE LENDING TRENDS 2016
-
8/18/2019 2016 Commercial Lending Trends Survey
31/31
Commercial Real Estate Lending Trends 2016