ARE YOU READY TO SELL OR PURCHASE YOUR INDUSTRIAL / OFFICE OR RETAIL BUILDING OR YOUR LAND in Phoenix, Maricopa County and Pinal County, Arizona, please call me. Also Call me if you need an estimated value of your Property. Office: 602-445-4113, Direct : 602-759-1209 , Cell: 520-975-5207 or email me firstname.lastname@example.org.
By K.C. Conway, MAI, CRE
It’s official: WeWork is New York’s largest office tenant. The coworking giant’s Manhattan portfolio now includes 50 locations totaling 5.3 million square feet — in addition to its ever-growing footprint worldwide of over 300 sites in 23 countries.
But have you asked a commercial real estate lender how they would underwrite a WeWork-occupied property today? I did, and the answers are unsettling.
In speaking with a cross-section of bank and non-bank permanent CRE lenders from Wall Street to Main Street, I discovered that no one had a definitive structure in mind regarding the financing of a building that was majority-occupied by a coworking business. What’s more, their institutions currently don’t have a lending policy or guidelines for coworking offices, co-warehousing facilities, or experiential real estate properties.
Even more concerning is that these types of innovations in commercial real estate — which will materially impact commercial real estate cash flow and value — are not on the minds of bank supervisors at the Federal Reserve or Office of the Comptroller of the Currency either. This tidbit was uncovered during my presentation to bank supervisors in Washington, D.C., in September.
Commercial Real Estate Insights Report4Q18 pdf
In their defense, 2018 was a great year for commercial real estate finance. Why wouldn’t 2019 and beyond be the same?
The fact is that there are new variables at play — possible game-changers. Debt capital has grown exponentially over the past seven decades. Technology is expanding just as quickly, if not more so. The U.S. economy is in the late stages of a decade-long recovery, while innovations in the industry are altering the design and use of commercial real estate. On top of that, commercial real estate professionals too often are afflicted by a belief that trends and patterns today will continue, a phenomenon known as recency bias. But if history has taught us anything, it’s that these patterns of recovery and expansion are prone to disruption. And there’s no shortage of possible disruptors right now — the aftereffects of the midterm elections, tariffs on $200-plus billion of imported Chinese goods, and the third interest rate hike in 2018 by the Federal Reserve, just to name a few.
The question of the next commercial real estate finance (CREF) disruption is not a matter of when, but how. It will not be caused by a subprime mortgage crisis or overleverage in commercial mortgage-backed securitization market (CMBS). The likely suspects this time around will be a combination of rising interest rates and a disruption in liquidity for commercial real estate lending as a result of accounting, regulatory, and financial product shake-ups. How did we get here? More importantly, where do we go from here? And how can you prepare yourself for the imminent disruption? Let’s start at the beginning.
Recessions and CREF Disruptions Create New Demands on Technology and Data Analytics
Look back at prior CRE finance disruptions from the past five decades and consider how this next CRE finance disruption may look like prior ones, but with very different root causes and outcomes.
The Great Inflation. Interest rates rose sharply from 5.25% in 1972 to a prime lending rate of 20.5% in the summer of 1980.
The Savings & Loan Crisis. The 1981 Economic Recovery Tax Act and the change in the tax law in 1986 triggered the implosion of a critical CRE finance source, S&Ls.
The Not-So-Great Recession. The United States’ restrictive monetary policy in response to inflation concerns and the Fed raising rates were among the causes.
The Great Recession. Leading into the 2007-2009 crisis, the Federal Reserve raised interest rates 16 times between 1Q2004 and 2Q2006, pushing the 10-year Treasury rate back to 5.0 percent.
The $20,000 Bitcoin question.
From Alternative Investment to Mainstream Asset
Commercial real estate finance has come a long way since 1955, when total debt capital invested was $250 billion. By 1H2018, outstanding commercial and multifamily debt totaled $4.1 trillion — a staggering 1,500-plus percent increase in less than seven decades1.
No longer the alternative asset of the post-World War II era, commercial real estate is now deeply embedded in every debt and equity investment vehicle and structure. CREF sources also have steadily expanded over the decades, from primarily credit unions and regulated banks in the 1950s and 1960s; to pension funds and REITs in the 1970s; to hedge funds and mezzanine debt lenders in the 1990s; and to today’s alternative lenders, finance companies, and crowdfunding platforms that emerged in the wake of the Great Recession.
The evolution of CREF structures and participants and advances in technology are inextricably tied. Specifically, technological advances in both data analytics and property cash flow software have been critical catalysts, delivering the transparency required by regulated banks, institutional investment funds, and public finance companies to engage more broadly in real estate finance. Whether it’s the impact of new and more sophisticated discounted cash flow software like Argus to value and underwrite more-complex lease structures; or smartphones and apps that provide access to data anytime, anywhere; or emerging transaction technologies like blockchain, technology remains the high-octane fuel in the industry’s engine. These advancements in real estate finance have provided both:
- Transparency into an asset class that was previously regarded as local and more owner-occupied/single-tenant in nature; and
- Data analytics to slice and dice increasingly complex lease and capital structures into investment products that can be packaged and securitized to more investors in much the way CMBS has transformed real estate into a bond investment.
Additionally, expanded market data analytics, like those provided by Trepp, EDR, Reis, and MetroStudy, provide capital sources the confidence to venture increasingly into secondary and tertiary metropolitan statistical areas (MSAs). Bottom line, without this technology, CREF would never have expanded to the $4.1 trillion market it is today.
For example, in 1Q2018 CREF rebounded with the strongest 1Q since the Great Recession, representing three consecutive quarters of growth, according to Jamie Woodwell, MBA’s VP of Commercial Real Estate Research. The CMBS market powered the CRE mortgage debt increase, adding $6 billion to its balance sheet — a sharp contrast to the $21 billion decline over the same period in 2017. “Strong property fundamentals and property values continue to support mortgage borrowing and lending… and property owners have multiple sources of capital from which to get financing,” says Woodwell.2
Diving deeper, finance companies saw the largest growth, increasing their holdings by 5 percent, compared to the largest decrease by pension funds at 4.8 percent. This shift to more lending by CMBS and less by life companies is another signal of an impending inflection point in CREF. With loan-to-values on the rise as well as capital sources with a greater appetite for risk stepping up (alternative lenders, mezzanine debt firms, and CMBS), more conservative capital sources are pulling back from the frothiness of this market cycle.
CREF is now too big and systemic to be put back into the alternative asset bottle. While the increased level of liquidity for CRE assets is good for the health of the commercial real estate industry, it is not without risks. Many of these risks are re-emerging approximately one decade since our last major recession and real estate finance disruption — aligning with history’s schedule of economic disruption every decade since the
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Phoenix Commercial Real Estate and Investment Real Estate: Investors and Owner / Users need to really know the market today before making a move in owner user Commercial Properties, Investment Properties and land in Phoenix / Maricopa County, Pinal County / Arizona, as the market has a lot of moving parts today. What is going on socio-economically, what is going on demographically, what is going on with location, with competing businesses, with public policy in general — all of these things affect the quality of selling or purchasing your Commercial Properties, Commercial Investment Properties and Commercial and large tracts of Residential Land Therefore, you need a broker, a CCIM (Certified Commercial Investment Member) who is a recognized expert in the commercial and investment real estate industry and who understands Commercial Properties and Investment Properties. I am marketing my listings on Costar, Loop-net CCIM, Kasten Long Commercial Group. I also sold hundreds millions of dollars’ worth of Investment Properties / Owner User Properties in Retail, Office Industrial, Multi-family and Land in Arizona and therefore I am working with brokers, Investors and Developers. I am also a CCIM and through this origination ( www.ccim.com ) I have access to marketing not only in the United States, but also internationalClick here to find out what is a CCIM: https://en.wikipedia.org/wiki/CCIM
PLEASE CALL ME – Direct : 602-759-1209 , cell: 520-975-5207 or email me email@example.com
“You miss 100 percent of the shots you never take, and if you think it’s expensive to hire a professional to do the job, wait until you hire an amateur “ ARE YOU READY TO SELL OR PURCHASE YOUR INDUSTRIAL / OFFICE OR RETAIL BUILDING OR YOUR LAND in Phoenix, Maricopa County and Pinal County, Arizona, please call me. Office: 602-445-4113, Direct : 602-759-1209 , cell: 520-975-5207 or email me firstname.lastname@example.org. …. VIEW ALL OF WALTERS LISTINGS. Let me know if you are interested in Apartments: CLICK HERE FOR APARTMENTS FOR SALE
Walter Unger CCIM
Senior Associate Broker
Kasten Long Commercial Group
5110 N 40th Street, Suite 110
Phoenix , AZ 85018
- DEMOGRAPHIC FACTS ABOUT MARICOPA COUNTY:
- The average age of the population is 34 years old.
- The health cost index score in this area is 102.1. (100 = national average)
- Here are some of the distributions of commute times for the area: <15 min (22.7%), 15-29 min (36.8%), 30-44 min (25.1%), 45-59 min (8.6%), >60 min (6.8%).
Feel free to contact Walter regarding any of these stories, the current market, distressed commercial real estate opportunities and needs, your property or your Investment Needs for Comercial Properties in Phoenix, Tucson, Arizona.
Walter Unger CCIM
Senior Associate Broker
Kasten Long Commercial Group
5110 N 40th Street, Suite 110
Phoenix , AZ 85018
Kasten Long Commercial Group tracks all advertised apartment communities, including those advertised by other brokerages. The interactive map shows the location of each community (10+ units) and each location is color coded by the size (number of total units).
Walter Unger CCIM, CCSS, CCLS
I am a successful Commercial / Investment Real Estate Broker in Arizona now for 20 years. If you have any questions about Commercial / Investment Properties in Phoenix or Commercial / Investment Properties in Arizona, I will gladly sit down with you and share my expertise and my professional opinion with you. I am also in this to make money therefore it will be a win-win situation for all of us.
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