Washington Gridlock Clouds Leaders’ Brightening Outlook
- Apr 06, 2012
Amid signs that the real estate industry is rebounding, policy gridlock in the nation’s capital poses the biggest long-term threat to the real estate capital markets, according to the CPE 100 Quarterly Sentiment Survey. The findings emerged from the inaugural national poll of industry leaders by Commercial Property Executive.
More than half of the executives surveyed—52.6 percent—named policy stalemates in Washington, D.C., as the number-one threat to the fragile recovery of the real estate capital markets. In fact, according to the survey results, real estate executives today are more worried about policy than about the economic challenges that have shaped business strategy for the past four years. Only 21 percent ranked economic issues—such as employment trends, the housing market or consumer spending—as the leading hazard to commercial real estate finance.
And although worries about Europe’s financial woes have not gone away, the European Union’s recent actions appear to have eased concerns about a broader dislocation. Only 16 percent of executives picked the European debt crisis as the problem most likely to disrupt the real estate capital markets in the U.S.
“Our findings clearly demonstrate how a stalemate in Washington impacts the outlook on capital markets. Real estate, which is particularly exposed to changes in carried interest and capital gains rates, might have little time to prepare for the impending changes to the Tax Code,” commented CPE associate editor Mike Ratliff, who manages CPE’s research division. “Although it is unlikely that any changes will occur before the 2012 election, the pace of change could quickly accelerate shortly afterward in light of the immediate need to tame the budget deficit.”
Asked about access to capital, slightly less than half of the executives surveyed—45 percent—said they expect that tapping into the real estate capital markets will be easier this year than it was last year. Meanwhile, half of those responding believe that the accessibility of the capital markets will be unchanged in 2012 compared to 2011.
The view of the CMBS market was more guarded. Forty percent of respondents believe that it will take until 2014 for CMBS volume to return to the levels necessary for refinancing and new capital sourcing, and another 35 percent said that volume will not return to an optimum level before 2015. Only 10 percent believe that CMBS volume will catch up with demand as early as this year. Slightly more—15 percent—predict that that volume will reach adequacy in 2013.
The Quarterly Sentiment Survey also asks the CPE 100 for their impressions of the short-term prospects for the real estate industry and the economy. Responses were relatively upbeat. Nearly two-thirds—63 percent—said that they expect general business conditions to be somewhat better three months from now than they are today. The remaining 37 percent said that conditions will be unchanged over that period.
Perhaps mindful of the lag time between economic indicators and real estate activities like leasing and development, a significantly smaller group—42 percent—agrees that the commercial real estate market will be healthier three months from now. Fifty-eight percent believe that the market’s health will maintain the status quo. When it comes to the performance of their own businesses, executives were more optimistic. Fifty-three percent said their companies will be doing somewhat better in three months. Nearly half—47 percent—expect the performance of their own businesses to remain unchanged.