Sorting Silver and Gray
- Sep 08, 2017
The journalist Gregg Easterbrook once pointed out that the economy almost always presents us with a mixed bag of news at any given time. His astute observation kept coming to mind as I was mulling this month’s theme.
Everywhere you look, the capital markets present a good-news, bad-news picture that makes it difficult to sum up the situation in a snappy headline, as we reporters love to do.
Take non-traded REITs, for example. As Amanda Marsh points out in “Tighter Times,” the sector’s fundraising is on track to finish 2017 with the lowest total in a dozen years. The new FINRA regulations that expand the definition of a fiduciary appeared to create hesitation among broker-dealers to sell non-traded REIT funds, at least in the short term. Yet there’s more to the story. Fundraising may be coming up short, but non-traded REIT sponsors can point to generally attractive returns and sound property fundamentals.
Moving on to the broader picture, investment sales volume rose $14.4 billion to $109.2 billion from the first to second quarters this year, according to Real Capital Analytics. The consensus among capital markets veterans is that sales will continue to pick up steam as 2017 heads for the home stretch. Commercial and multifamily mortgage loan originations jumped 28 percent from the first to second quarters, the Mortgage Bankers Association reported. All very encouraging, but the silver lining comes with a medium-sized cloud: At midyear, deal volume was down 8 percent.
When you look at these statistics, you understand the slight softening of investor sentiment detected by the latest Marcus & Millichap/NREI survey. Since the fourth quarter of 2016, the index has slipped from 153 to 150. That’s well short of the 179 score recorded three years ago.
Once more, though, that doesn’t tell the entire story. The survey also found that a majority of investors in industrial, multifamily and hospitality assets expect their properties to increase in value over the next 12 months. So do about half—49 percent—of those who own mixed-use assets. All told, 59 percent of investors said that they expect to increase their exposure in commercial real estate during the next 12 months.
I could go on, but you get the idea. Any number of things could trigger big changes in the capital markets, and that makes developing strategies more than a little challenging. Still, for whatever it’s worth, an old real estate reporter has to be impressed with the mixture of grown-up skepticism and sensible optimism out there right now.
Originally appearing in the September 2017 issue of CPE.