Tumultuous 2013

It remains a tumultuous time for the U.S. and world economies, and the post-deadline “fiscal cliff” deal did little to calm the waters.

It remains a tumultuous time for the U.S. and world economies, and the post-deadline “fiscal cliff” deal did little to calm the waters. Indeed, respondents to our monthly online poll overwhelmingly favored solutions to the fiscal cliff that were not part of the final agreement, most notably spending cuts, and they were not alone. With the President still rejecting Congressional Republicans’ demands for spending cuts in exchange for raising the national debt ceiling before a potential U.S. default, the new year was indeed off to an uncertain start as of late January.

Nonetheless, commercial real estate executives are optimistic. That was evidenced in the results of CPE’s fourth-quarter 2012 sentiment survey. Among responses gathered mostly as we were still waiting to see if there would even be a fiscal-cliff deal, 65 percent predicted that general business conditions would improve during the next three months, an increase over the third-quarter sentiment survey results. Just 50 percent indicated similar expectations for commercial real estate, but that was nonetheless an encouraging response rate.

At a more granular level, mortgage bankers preparing for February’s Mortgage Bankers Association Commercial Real Estate Finance/Multifamily Housing Convention & Expo likewise expressed optimism in our Q&A “A Lender for Every Deal,” saying they expect plenty of debt capital for solid borrowers in 2013.
Yet mortgage bankers and their direct-lender brethren will face no shortage of hurdles. Unresolved legislative and regulatory issues, low interest rates and the volatile global economy continue to pressure banks, which are experiencing their tightest profit margins in three years, according to Jones Lang LaSalle Inc.’s banking and finance outlook. Yields on commercial mortgage transactions remain flat. And distressed property sales showed signs of slowing in 2012, with a year-over-year decline during the 12 months ending in July, according to Real Capital Analytics Inc.

However, distressed properties continue to come on the market as loans on underwater properties mature without being refinanced, offering widespread possibilities for both investment and financing, as Steven Bandolik and Mark Wojteczko discuss in this month’s Distressed Debt & Asset Update. And while predictions are not yet out for 2013 commercial and multi-family originations, the MBA estimates that when last year’s final numbers are in, 2012 originations will total $230 billion, up from $184 billion in 2011.

Furthermore, most top financial services markets are now adding positions, Jones Lang LaSalle reports. And 2012 investment sales through Nov. 30 had already topped the total for all of 2011, according to RCA, with investors still racing to close deals to guard against potential capital gains tax hikes this year.

All in all, real estate finance and investment promise to be anything but dull in 2013.

Suzann D. Silverman, Editorial Director