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Commercial Lending Remains Strong

Overall sentiment about the commercial real estate market remains positive, even if there are some concerns about the availability of lending as the year continues.

The issue was highlighted in a number of recent studies, including the Real Estate Roundtable’s recent quarterly Sentiment Survey.

For now, lending for Class A properties continues to be very competitive with few signs of belt-tightening, according to Rob Skinner, Cushman & Wakefield’s Senior Managing Director of Valuation & Advisory Services.

Interest rates, while a constant topic of conversation, are less of a direct factor.

While they will increase in the near future, increasing the cost of debt financing, Skinner added that despite the Fed’s slow pace, the market has already built in the risk of future increases.

However, banks are starting to make lower leveraged deals, a sign that the availability of capital may plateau as annual investment activity by life insurance companies and others winds down at the end of the year.

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Image credit: CIT / Forbes Insight, May 2016

In RER’s survey, 20 percent of respondents said equity capital availability has improved during the past year. However, looking ahead 12 months, only 9 percent saw continued improvement, with most expecting the situation to stay roughly the same.

The market for Class B properties, however, is far less active.

Among CRE executives surveyed by Forbes, 24% said funding was limited to specific types of deals.

That bifurcated market may create a barbell picture of property values during the coming quarters, where core assets remain strong but performance drops off for less attractive properties.

In general, financing availability and market health will only extend as far as the economy can support them.

The real estate market is now entering its 8th year since the economic downturn, meaning some manner of adjustment could be on the horizon.

But at least for now – the overall picture remains positive.

 

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