A man cannot be comfortable without his own approval.” Mark Twain
Will Abundance of Cheap Capital Abounds Lead to Market Overconfidence?
By Randyl Drummer June 3, 2015
A new era of more stringent underwriting by banks and other lenders combined with greater diversity in sources of commercial real estate capital has helped ignite a rush of confidence among CRE executives, according to the 6th annual Akerman U.S. Real Estate Industry Outlook Survey released Wednesday.
The survey indicates that nearly 60% of real estate executives are more optimistic about the market this year than they were in 2014 as the U.S. lures greater levels of foreign investment and institutional capital surging higher to meet rising deal volumes.
Nearly half of the executives interviewed predicted that banks will drive commercial property financing over the coming year, and for the first time since 2011, they indicated that insurance companies will also be a main source of real estate financing. Foreign capital, already funneling equity into U.S. property deals, will be a key driver of growth in the financing space as well.
A surge in institutional capital is leading deal volumes, with an upward trajectory predicted in 2015. However, executives believe that foreign capital will continue to pour into the U.S., and CMBS, private equity, REITs and pension funds will serve as sources of an even greater volume contributed through non-traditional investment vehicles.
“The sources of capital are very diverse. There are any number of different and innovative ways that people are financing transactions, and that seems to point to a positive outlook,” said Akerman’s Andrew Berman.
Lending is different now, for example, in retail and office leasing, Berman said.
“Banks will not lend unless there is a large and stable tenant, and they are much more likely to be thinking about the exit strategies,” Berman said.
More than half, 58%, believe multifamily will continue to lead CRE through the recovery. Seven out of 10 agree apartment development will drive multifamily activity.
Executives said the single-family homebuilding market will be the second most active real estate sector at 10%, followed by hospitality, retail, industrial and office.
The purchasing power of the Chinese yuan over the U.S. dollar has the potential to be a significant driver for many U.S. markets across all property types.
The survey is composed of 176 executive interviews conducted between March 3 and March 30, 2015.
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