After the volume of commercial real estate loans rebounded after a difficult 2020, the number of transactions is expected to increase further this year in a climate of higher interest rates, according to industry experts with whom Commercial Observer spoke at. the end of 2021.
CRE’s total debt to commercial banks increased by $ 116 billion as of December 1, 2021, compared to 2020, when the market was largely at a standstill during the height of the COVID-19 pandemic, figures show from data analytics firm Cred iQ. Private label securitization also increased in 2021, to $ 159 billion, from $ 63 billion in 2020, with Cred iQ estimating a slight increase to $ 161 billion for 2022.
ACORE Capital co-founder Warren de Haan predicts many positive winds behind CRE loans in 2022, assuming the omicron variant turns out to be just a short-term hurdle and given the high volume of transactions in the market. side of investment sales in 2021. His company plans to increase its lending business to around $ 10 billion in 2022, from $ 7 billion in 2021, and expects there to be an increase in lending. transaction activities at all levels of non-bank platforms.
“I expect 2022 to be a banner year on the investment sales side, and for us on the lending side, I think it will be a record year as well,” said de Haan. “Banks continue to face regulatory pressures, and debt funds – like ourselves – I think they will enjoy a greater share of the market.”
De Haan noted that there is now a record amount of dedicated capital for CRE from private capital, pension funds and foreign investment. A lot of capital was raised early in the pandemic, seeking distressed opportunities that in most cases never materialized, de Haan says, which he says means more money that never remains on the sidelines while waiting to be invested.
CBRE’s outlook for 2022 calls for high loan origination volume through 2022 as borrowers seek to lock in lower rates ahead of the Federal Reserve’s expected monetary tightening policy. Commercial Mortgage Backed Securities (CMBS) issuance is expected to remain high this year due to investor appetite for higher yields if the Fed’s reduction in asset purchases is conducted in a manner that does not not disrupt credit markets, according to CBRE.
The Fed is expected to hike interest rates three times in 2022 to cope with rising inflation, a move that could prompt banks to become more aggressive on lending in order to increase net interest margins. De Haan cautioned, however, that lenders will need to be aware of the potential for these rising interest rates to negatively affect cap rates, which could lower the value of some properties.
âIn general, as lenders, we build a lot of cushions into our underwriting to accommodate rising interest rates,â de Haan said. “We’re all somehow programmed to be a little more conservative than the equity folks.”
According to de Haan, around 80% of ACORE’s lending business is focused on acquisition finance, which he says will present a lot of opportunities in 2022 across a number of industries. Karen Ramos, head of mortgage syndications for the Americas at CrÃ©dit Agricole CIB, agreed that loan issuance in 2022 is expected to see year-over-year growth that is expected to equal or even exceed pre-market levels. pandemic, in large part thanks to borrowers seeking revaluations at lower margins. refinances executed in 2020. Ramos also noted that there is strong demand for acquisitions from real estate investment trusts, private companies and investment funds to strengthen balance sheets, as well as “continued pent-up demand.” from investors.
Interest rate hikes would push more borrowers to fund deals early in the year at lower rates, Ramos said. Following these increases, she expects lenders to continue their aggressive strategies with industrial and multi-family transactions and, to a lesser extent, office transactions. Lenders will be more cautious about hotel deals with higher rates and “very selective retail,” Ramos said.
Alternative lenders have dominated much of the CRE debt markets over the past year and this trend is expected to continue into 2022, according to CBRE, aided by life insurance companies finding value in many assets. multi-family and industrial. CBRE predicts that life insurance companies will remain active financiers this year, with some also selling portfolios to private equity firms, who tend to be more aggressive when it comes to yield.
This year could also see an increase in refinancing operations, particularly in the CMBS space. There are a number of agreements that were issued 10 years ago at much higher fixed interest rates, as a result of the last financial crisis, that will be repayable.
Alison Coen, senior managing director of Greystone’s CMBS lending group, expects a strong start to the market in 2022 due to low interest rates in the range of 3.25-3.75%. She expects CMBS duct volume alone to increase by around 20% this year.
âThe timelines from 2012 are kind of a built-in floor for duct production this year, and they’ll go up from there,â Coen said. âWhile all types of properties will play a role, industry, self-storage and multi-family homes, when we can get it, will continue to be in favor. “
CBRE also expects another strong year for the multi-family sector – the darling of the commercial real estate world – in 2022, helped in large part by a growing range of debt options available to it from traditional credit sources. as well as debt funds and mortgage real estate investments. trusts. Incredibly liquid multi-family debt markets are likely to help stabilize and possibly compress cap rates even when interest rates rise, according to CBRE.
Solomon Garber, partner at non-bank lending platform Bridgeton Capital, said he expects record volume in the first half of 2022, before hot multi-family and industrial sectors start to cool slightly.
âI think you are going to see a peak of madness in pursuing the multi-family and the industrial; then at some point, maybe in the second half of the year, people start to go down and say maybe from an equity perspective, debt perspective, multi-family and manufacturers are getting overheated â said Garber, who, before joining Bridgeton last October, managed the national rigs for North East Shore. âAt some point, they have to withdraw and something has to give way. “
Michael Eglit, head of arrangements in the United States for Blackstone Real Estate Debt Strategies, foresees a “strengthening real estate fundamentals âin 2022 that will help it leverage the $ 25 billion in global lending volume made in 2021. He said that in addition to growing transaction activity, Blackstone is finding more sources of capital, particularly in long-term fixed income securities. space.
“It would also not surprise us to see an increase in the volume of office and retail transactions as equity investors gain more clarity on the future of these asset classes and in some cases seek a return. higher, âEglit said.
Garber said the office market could be hit even harder in 2022, assuming remote work trends largely remain in place even as the pandemic subsides. He said that while Class A buildings in major markets may weather the storm due to holding long-term leases with large corporations, sponsors of smaller assets will face a much more difficult road in trying to receive financing for transactions.
âThe big companies that control all these big markets like the Facebooks and the Google’s of the world, they’re going to take up more space because it’s such a small percentage of their overall budget and they want to meet the different needs of their customers. employees. ” Garber said. âThere are going to be the haves and have nots and the weaker office buildings are going to die at a faster rate. You will begin to hear more of this story.
The hospitality industry will also face persistent challenges in 2022, with more sponsors needing debt than there are lenders willing to issue capital to struggling hotels. Garber noted the intense pain the accommodation industry still faces, with many hotels still falling short of pre-pandemic occupancy levels and room rates. This could cause many lenders to lose patience after giving some leeway in 2021.
Bridgeton is looking to fill part of that void with $ 350 million in funding slated for the first nine months of 2022, much of which will be dedicated to the hospitality industry. Garber’s platform was launched by hotel developer Bridgeton Holdings, which owns the Walker Hotels in Manhattan and the all-new Marram Montauk on Long Island.
ACORE also launched a billion dollar hotel rescue capital fund last February, intended to help some hotel borrowers hard hit by the pandemic. De Haan said hotel assets for which he believed there would be funding opportunities ended up recovering faster than expected. He pointed out that omicron, however, has the potential to disrupt the industry again in early 2022, with canceled reservations that would cause borrowers to need that bailout capital.
De Haan, for his part, predicts that lenders are likely to continue to be patient with hotel borrowers as long as they commit to contributing equity to troubled deals.
âI think as long as there is a lot of equity in the deal, as long as the borrower has continued to bring equity into their properties to support them, I think you will see the lenders playing the game. game, âhe said. âIf the borrowers decide to stop investing equity and fund depleted reserves and things like that, I think you’ll see lenders start to hit their end of the line. “