Multifamily to Benefit from Improving CRE Finance
- Feb 17, 2011
San Diego–Lack of capital is no longer the main problem for real estate finance, according to Jones Lang LaSalle’s 2011 Commercial Real Estate Financing Outlook, which was released this week. Rather, the primary impediment to CRE finance these days is the fact that there is still a significant number of overleveraged assets requiring recapitalization and deleveraging, the report posits.
Yet the volume of distressed assets isn’t that much of an impediment. Despite a much smaller base of transactional volume than existed four years ago because of tighter underwriting standards, CRE values have stabilized and capital has returned to the market, with multifamily properties poised to be one of the main beneficiaries of the trend.
In particular, brighter times for CRE finance is in the cards for 2011 due to the gradual recovery of the CMBS origination market, which has been AWOL for some years now. JLL says that CMBS is expected to broaden and accelerate this year, with total issuance in 2011 expected to top $40 billion, providing added liquidity to owners with maturing loans to refinance. The first quarter of 2011 is already off to a strong start with upwards of $10 billion CMBS in the pipeline, compared with $10.9 billion for all of 2010.
The new wellspring of capital looking for a home in commercial real estate finance has some specific ideas about the best property types for lending–namely, core-market multifamily and office properties, notes the report.
Also, multifamily properties are also the new darlings of investors looking for CRE to buy. “Interest in multifamily properties has … been very strong and is expected to stay that way due to pent-up demand as the residential housing market remains weak and potential renters are tired of living at home, or sharing space with roommates,” says the report.
For distressed assets, including multifamily, the report notes that “opportunistic capital is still available for these highly distressed assets.” But that opportunistic capital is having an unexpectedly hard time finding opportunities, “which have not materialized in the quantity the market-at-large had originally anticipated.”