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M&M: CRE Capital Markets Remain Active

By Michael Tucker 1

Commercial real estate capital markets remain active despite volatility from Europe's financial crisis, uncertainty about the U.S. fiscal cliff and other concerns, said Marcus & Millichap, Calabasas, Calif.

“The stabilization, and even appreciation, of commercial real estate values has supported increased credit availability and now extends to creditworthy properties in secondary markets,” said Hessam Nadji, managing director of research and advisory services with Marcus & Millichap.

Nadji said the strength of commercial mortgage originations for retail and hotel properties drove a 25 percent increase in overall lending volume between the second and third quarters last year. Retail lending jumped 56 percent and hotel lending increased 22 percent. Multifamily lending increased 19 percent and office lending increased 15 percent in the same time period. Only industrial property loans decreased, falling 5 percent.

“Portfolio lenders have expanded their allocation to real estate and increased their market share of loan originations,” Nadji said. “They compete effectively with conduit lenders on rates and tend to attract the best-in-class properties, but remain more conservative on the loan-to-value ratio and geography.”

Commercial mortgage-backed securities remain a key source for financing commercial real estate. 2012's issuance volume, expected to approach $50 billion, significantly outpaced 2011's $32.7 billion volume. “Conduit lenders suggest a healthy real estate market requires closer to $60 billion in CMBS issuance, and the market will likely achieve these levels in 2013,” Nadji said.

Government-sponsored enterprises Fannie Mae and Freddie Mac expanded their volume of multifamily loans by 50 percent with an estimated 2012 year-end volume of $45 billion. Nadji said Fannie Mae and Freddie Mac underwrote a full 85 percent of multifamily loans during the credit cycle’s low point in 2008. “[But,] life companies and national banks now aggressively seek multifamily deals, increasing respective market shares while eroding the GSEs' share to 60 percent, a ratio reflective of a more normal credit environment.”

1 Printed with permission by MBA Commercial/Multifamily NewsLink.