Leading commercial real estate lenders expect loan volume in 2015 to top 2014, driven by refinancing of maturing debt and strong market fundamentals.
In the near term, however, Congress' failure to extend the Terrorism Risk Insurance Act beyond Dec. 31, 2014 could chill transactions, according to a survey of Commercial Real Estate Finance Council members released on Monday. TRIA provides a federal backstop against potential losses from terrorist attacks.
Respondents expect issuance of commercial mortgage-backed securities to be in the range of $100 billion to $125 billion this year, with the largest increase seen in floating rate conduits and the majority of issuance concentrated in fixed-rate conduits.
Almost all respondents expect an increase in lending by banks and life insurance companies, collectively known as balance sheet lenders, with loan terms the same for most organizations and the concentration of new loans in the multifamily and office sectors.
Origination by government-sponsored enterprises is expected to remain about the same as 2014. However, there is concern in the credit quality of multifamily loans and the likelihood for oversupply in major markets.
While 74% of survey respondents expect benchmark interest rates to rise in 2015, in contrast to last year market participants are not as worried about interest rate increases as they are confident in the Federal Reserve's ability to manage any increases in a thoughtful manner.
Overall liquidity is expected to stay the same or expand in 2015; 47% of respondents believe there will be more liquidity available in the marketplace, while 38% predicting similar availability from 2014.
Underwriting is predicted to be more aggressive based on higher valuations and higher leverage, with potentially somewhat lower credit quality.
On the lender side, demand drivers include the potential for attractive risk-adjusted returns and fundamentally sound real estate market conditions. On the borrower side, demand drivers include the low cost of financing, economically justifiable real estate market activity including some new development, and the continuing wave of maturing CMBS.
"Industry participants see another year of positive growth for commercial real estate debt markets as ample capital and credit should be available to meet borrower demand and pending loan maturities," Stephen M. Renna, president and chief executive of the CRE Finance Council said in a press release. "This is buoyed by stronger overall economic growth and a trend of improving property fundamentals. However, for growth to be sustained it is critical that the industry demonstrate underwriting discipline in the face of abundant capital and heightened competition."
The CRE Finance Council represents conduit lenders, investors and servicers of commercial mortgage-backed securities, bank and life insurance company lenders, private equity lenders and investors, and government-sponsored enterprise lenders. Seventy-seven companies participated in the latest survey.