The 20 Rising Stars of Real Estate 2008 - (Page 7) CMBS VOLUME DECREASES Year of Pricing 2006 Qtr of Pricing 1 2 3 4 1 2 3 4 1 Total $36,828,815,229 $38,552,412,418 $29,870,710,586 $52,361,955,485 $54,778,534,915 $58,222,961,437 $49,279,073,065 $29,253,343,246 $3,661,522,843 at $8.31 billion at the end of this January, while the total for the first quarter last year was $20.26 billion. Helping the apartment sector is the fact that Fannie Mae and Freddie Mac are providing liquidity for investors in multifamily properties – something that is not available to other commercial property investors. This also is making a difference to real estate financiers. Indeed, Fannie Mae’s loan assurances saved the launch of RBC Capital Market’s small-balance lending program last fall, according to Cheryl Higley, the program’s director. 2007 2008 source: Real Capital Analytics totaled $26.35 billion for the first quarter last year but stands at just $3.32 billion for January, according to Real Capital Analytics data. Recent bankruptcy filings by retailers, as well as a cooling in consumer spending, are indicative of the challenges ahead for the sector, he explained. SELECT POCKETS OF RESILIENCY While there is plenty of gloom hanging over the commercial real estate market right now, it is not uniform across all the property sectors. Some sectors are even showing subtle signs of near-term improvement. “The apartment sector is going to fair better than the others,” White said, adding that sales volume declines may be slowing there. According to data from Real Capital Analytics, it stood In addition, there is a widely held belief that occupancies in apartments benefit from a weak housing market. “The occupancies could hold up and maybe even improve a little bit,” White said. Furthermore, many see opportunities in international markets as an alternative to the woes of the current U.S. markets, as well as a continuation of an overall shift toward global investing. “There’s going to be a greater international focus among funds and real estate investment trusts,” according to Jeff Hanson, president and chief investment officer of Grubb & Ellis Realty Investors in Santa Ana, Calif. CMBS STABILITY IS KEY In general, however, uncertainties about the economy need to lift for the overall commercial real estate market to recover, White said. Then, sta AS RISK SPREADS INCREASE bility needs to return to the commercial mortgage-backed securities (CMBS) CRE Equity & Debt Spreads market, where risk is currently high. to 10-yr Treasuries 1,600 1,400 1,200 1,000 800 600 400 bps According to Real Capital Analytics, risk in CMBS transactions has spiked (see chart to the left). “That shows you the volatility in the pricing of CMBS,” White said, adding that this volatility is caused by very bearish sentiment among CMBS bond investors. BBB cmbs Cap Rates 200 0 AAA cmbs J FMAMJ J ASOND J FMAMJ J ASOND J F '06 '07 '08 source: RCA, Commercial Real Estate Direct Szwajkowski of CapitalSource noted that there is no consensus as to how to price risk. Once a consensus is sorted out, however, the real estate market will benefit because it will be more organized. “We’ll see ownership of institutional real estate organized in the hands of funds and institutional investors,” he added. i REAL ESTATE RISING STARS 7 MARCH 2008
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