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Note from Orlando: All's well with the commercial real estate market

by  | Corporate
Posted:     Updated: Feb 5, 2016  17:32 ET
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The Mortgage Bankers Association (MBA) held its national commercial and multifamily mortgage convention in Orlando, Florida, this past week, and the outlook for U.S. commercial real estate market was outlined in glowing terms — at least for this year.

MBA President David Stevens summed up how things stand: "Rents are up; vacancy rates are down. Prices are up; cap rates are down. Lending volumes are up; delinquency rates are down. And, for the coming year, the outlook remains solid."

office building

MBA analysts predicted that commercial mortgage originations would reach $511 billion, a record surpassing the previous peak in 2007. Driven by heavy investment in industrial and hotel properties, originations rose 35 percent between the third and fourth quarters of last year, and were up 19 percent year over year at the end of the fourth quarter, the MBA said.

“It was a very strong end to a very strong year,” said Jamie Woodwell, MBA’s vice president of research and economics during a news conference at the convention.

Some doubt has crept into the forecasts since mid-last year, when commercial property prices reached new peaks. Some analysts and investors have expressed concerned about a free flow of money chasing commercial real estate, double-digit gains in prices in the major markets, low cap rates and diminishing spreads. At the conference, panelists noted that underwriting standards have fallen off a bit on newly originated loans underpinning commercial mortgage-backed securities. The MBA also is forecasting that the growth in sales and prices probably won’t continue at the same pace in 2016.

The general consensus among analysts at the conference, however, was that the commercial real estate cycle still has some legs, and 2016 will see growth.

Victor Calanog, chief economist with Reis Inc., told conference attendees that the fundamentals are steady and there's little chance of an economic downturn driven by a collapse in commercial real estate.

"It's hard to point to any sector where you can identify a bubble that could take the economy down with it," Calanog said. "In retrospect, in 2006 through 2008, the housing market was big enough to do so, but right now I'm hard pressed to say I'm worried about that as an economist."

At the conference, MBA’s Chief Economist Michael Fratantoni said overseas turmoil has made commercial assets more attractive to foreign investors. Foreign investors are seeking U.S. projects to finance, and the influx of money from those foreign sources is holding interest rates down, despite the hike in the federal funds rate.

“In the U.S., the job market is strong and the economy as a whole is strong, but the rest of the world is suffering from no end to maladies,” Fratantoni said.

Bill Lewis, editor of Scotsman Guide’s Commercial Edition, attended the three-day MBA conference and contributed to this report.


Victor Whitman is chief reporter for Scotsman Guide Media. Reach him at (800) 297-6038 or

Topics: Commercial economy | Commercial lending
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Note from Orlando: All's well with the commercial real estate market

by Scotsman Guide Media | Corporate
Posted: Feb 5, 2016  17:31 ET    Updated: Feb 5, 2016  17:32 ET

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