CIT Survey: Middle-Market CRE Execs Cautiously Optimistic About 2014

A new survey conducted by CIT Group finds that middle-market commercial real estate executives are cautiously optimistic toward the market in 2014 and are looking to take advantage of long-term investment opportunities.

matthew-galliganA new survey conducted by CIT Group Inc., finds that middle market commercial real estate executives are cautiously optimistic toward the market in 2014 and are looking to take advantage of long-term investment opportunities.

For the study, conducted in partnership with Forbes Insights, CIT interviewed 208 senior U.S.-based middle-market executives in the commercial real estate space, talking with those responsible for between $25 million and $1 billion in annual sales.

The findings showed a cautious optimism, as 57 percent of industry executives believe the U.S. commercial real estate market is in recovery, with 10 percent saying the recovery is very strong. Nonetheless, just under a third warn that certain segments of the industry are poised for significant decline.

“The number and the level that people thought the recovery was in place is relatively optimistic,” Matt Galligan, CIT Real Estate Finance’s president, told Commercial Property Executive. “There are pluses and minuses to this particular aspect. There’s a tremendous amount of cash around so deals can readily be financed. Values have gone up because interest rates are low and there is some concern as to where this is going to hedge.”

The survey finds that 60 percent of respondents believe their go-forward orientation is opportunistic, with a mix of challenges and opportunities; 60 percent also say the current tax and regulatory climate is placing a strain on their performance. Additionally, 40 percent say they are negotiating harder with state and local governments to obtain tax credits.

The report also shows that a majority of these executives are concerned about the current tax and regulatory climate, which is placing a strain on the performance of their companies. Many, Galligan said, are frustrated and draw conclusions about ObamaCare, although he doesn’t see direct relevance to it.

“It’s fascinating to me. If you are an investor, owner or developer of real estate, it’s understandable how state and local taxes and regulation would be a problem. It comes right out of your pocket,” Galligan said. “Whereas the Affordable Care Act, I can understand how that would impact employment, but that’s kind of derivative. There’s not a direct correlation between this and investment in real estate.”

Commercial real estate executives view the markets as either mixed (51 percent), flat (7 percent), or weak (5 percent). However, three out of 10 describe the markets where they are active as strong. According to Galligan, certain asset classes that are generally riskier than others, such as hotels, have a tremendous amount of capital going into them.

“Commercial real estate has been known to be a bellwether for the overall U.S. economy,” Galligan said. “As we enter 2014, we are seeing mixed views among middle market commercial real estate executives. The good news is we are definitely seeing renewed optimism and expectations for a more complete recovery down the road.”

The survey also asked respondents to rank the top five factors that influence their investment decisions and the top answers were interest rates, unemployment rates, The Affordable Care Act, foreclosures and consumer confidence.