Amid ongoing industry concerns, growing commercial and multi-family mortgage activity improves the outlook for the market over the next year, according to the CRE Finance Council.
The sentiment index of the group climbed in the second quarter to its highest level of 119.2 from 118.7 in the first and 84.4 a year ago. The survey started with a baseline of 100 in the fourth quarter of 2017.
A large 83% of the Board of Governors polled were positive about CRE business for the next 12 months, up from 72% quarterly and 21% annually. At the same time, 58% expressed themselves positively in the next year about the surrounding commercial real estate environment, roughly on par with the 59% from the first quarter, while the 15% from the previous year almost quadrupled.
88% of respondents said that their commercial loan programs are at full capacity, with 7% partially operational and 5% not starting new business. These shifted from 71%, 24% and 6% in the first quarter and 34%, 54% and 11% year on year. In addition, 31% said they saw more transaction volume in the second quarter than before the pandemic began.
Other industry analyzes agree with the increasingly positive picture. The Mortgage Bankers Association projected that lending to commercial and apartment buildings would hit $ 486 billion in 2021 and $ 539 billion in 2022, after raising $ 440 billion in 2020.
"As the restrictions in states across the country are lifted and the economy reopens, we hope for a strong recovery with investors eager to break away from the sidelines," said Lisa Pendergast, executive director of CREFC, in a press release .
However, an increasingly negative outlook surrounds government policies and regulations. A 30% share believe that policies will limit commercial property financing over the next 12 months, up from 13% quarterly and 15% annually. Any changes, including a LIBOR transition, reform of government-sponsored companies and alignment with the Community Reinvestment Act or increased environmental, social and governance requirements, could discourage investments.
“For example, an exchange of real estate under section 1031 of a similar type enables borrowers to defer tax recognition when selling a property in order to buy a similar property. Deferred tax treatment is an important factor in transactions, and discontinuing it could continue to weigh on the commercial real estate industry as it tries to recover from the pandemic, "a CREFC representative told NMN.
However, not every CRE segment is given the same importance. The trade association ranked retail properties as the most worrying in the aftermath of the coronavirus, followed by office space and hotels. The industrial sector has the least concern, with apartment buildings next.
"Retailers and hotels remain the most stressed in the wake of the pandemic, and the survey indicated concerns about post-COVID office performance," said Eric Thompson, elected chairman of the CREFC board of governors remained relatively low, well below what it was at the start of the Crisis was expected. "
Concerns about the plight of commercial real estate loans appear to have subsided since the pandemic began. The latest survey results showed that 90% think commercial lending will do better than it did after the global financial crash in 2008 and 5% worse, compared with 91% and 9% in the first quarter and 31% and 54% in June 2020.