Adding to the market uncertainty is
the decline in new CMBS issuance anticipated this year. Duca says there was a
significant drop in new paper issued during the fourth quarter and it has not
picked up so far this year. In addition to
lenders’ capital constraints, he notes that
historically wide spreads and investor
uncertainty are also keeping new loans
at a minimum. “At current spread levels,
CMBS lenders are not competitive in
the commercial real estate finance
arena,” he says.
Moody’s expects to see less than $100
billion of CMBS issuance this year, less
than half the $230 billion recorded in
Yet that doesn’t mean traditional conduit lenders have completely exited the
financing arena. “The CMBS market
represents a large share of overall real
estate finance,” Duca explains. “If the
CMBS lenders aren’t helping to
fund commercial real estate loans, who
will? Banks and insurance companies
are only going to be able to do so much
business, and that will probably affect
the rates they’re able to offer. At the
point where they can no longer meet
the demand for financing, perhaps
CMBS lenders will become more competitive again.”
But for now, the lack of active lenders
has severely reduced liquidity in the market and could ultimately drive asset prices
down, he adds. “Commercial real estate
prices increased significantly with the
infusion of liquidity the market has seen
the past few years,” he says. “With the
trend reversing, we could see
prices declining.”—Jennifer McCandless
CEOs’ Outlook Upbeat
Despite Credit Collapse
In spite of the massive disruption in the
capital markets, CEOs and senior executives toiling at real estate firms and related companies are fairly optimistic about
the year ahead due to solid fundamentals.
Those opinions came to light in the second annual Leading the Enterprise 2008
survey sponsored by the Real Estate
Roundtable and FPL Advisory Group.
The shifting view of the economy was
perhaps the most striking finding of the
survey, which polled nearly 200 top-level
executives in late 2007. In the previous
findings, 63% reported a positive outlook
for the overall economy, with 9% saying
they had a “strongly positive” attitude.
Twelve months later, only 38% maintained a positive position, with less than
3% opting for “strongly positive.” The
number of those in the neutral camp rose
from 25% to 29%. Also up from last year
was the percentage of respondents who
say they are “not very confident,” a figure
that rose to 32% versus 12% in 2006. By
sector, the most confident are executives
in the equity REIT, investment management and private equity business, while
homebuilders, investment bankers and
developers are the least confident.
Nevertheless, 69% forecasted increases in revenues in 2008, with 71% anticipating a hike in profitability. Although
those figures are lower than the prior
results—85% and 80%, respectively—they
still indicate an optimistic consensus, say
the report’s authors.
Jeffrey D. DeBoer, president and CEO
of Washington, DC-based RER, says generally stable fundamentals in terms of supply and demand and rent rolls play into
the executives’ cautiously optimistic
stance. “The overall picture you see from
our survey is some slowdown, but optimism about the future.”
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© 2008, Spectrus Real Estate. All rights reserved. This is not an offer to purchase or sell real
estate. This information is not intended to replace qualified legal and/or tax advice.