This document summarizes a panel discussion on trends in the commercial real estate finance industry. It discusses current market trends such as lending volumes, interest rates, and the expansion of alternative lenders. Regulatory topics covered include potential reforms to Dodd-Frank and the future of Fannie Mae and Freddie Mac. Infrastructure spending, tax reform proposals, and foreign investment in US real estate are also summarized. Survey results from CREFC members gauge sentiment on issues like loan origination volumes and concerns around geopolitical and economic factors.
2. 2
⢠MODERATOR DAN GOTTLIEB
⢠Chief Operating Officer, EDR
PANELISTS:
⢠LISA A. PENDERGAST
⢠Executive Director
⢠Commercial Real Estate Finance Council (CREFC)
⢠MICHAEL P. FLOOD
⢠Deputy Executive Director
⢠Commercial Real Estate Finance Council
OUR SPEAKERS
4. 4
MEGA TRENDS
⢠Sharing economy, collaborative economy â Air B&B, WeWork â multi-configurable
spaces and flexible leases
⢠E-commerce -Telecommuting, Driverless Cars
⢠Demographic Shifts -- Millennials and Baby Boomer
REGULATORY DEVELOPMENTS
⢠Capital developments, alternative lenders, taxes, infrastructure
PROTRACTED ECONOMIC RECOVERY GIVES LEGS TO CYCLE
⢠Prolonged period of low rates informed by weaker/volatile global markets
⢠Cautiously optimistic that industry can continue to grow
⢠Fundraising declines as focus turns to allocation â niche markets for returns
⢠Non-residential construction spending to grow at a slower pace amidst caution
KEY CRE FINANCE MARKET TRENDS
5. 5
FOREIGN INVESTMENT IN U.S. CRE/MULTIFAMILY
⢠Chinese (Life Cos) largest group of foreign investors in 2016 at $19.2b, up 10%
⢠Safety (15% outside investment limit), diversify away from slowing economy,
depreciating yuan, $1b+ buys
⢠2nd largest was Canada at $13.1b (Forbes)
⢠FIRPTA and EB5 developments
FEDERAL RESERVE / REGULATORS CITE CAUTION
⢠Loosening credit risk underwriting practices
⢠CRE growth and concentration risk on bank portfolios
EXPANSION OF LENDER TYPES
REDUCED CRE TRANSACTION VOLUMES
KEY CRE FINANCE MARKET TRENDS
6. 6
OVERALL CRE PICTURE FOR 2017
⢠55% believe CRE property markets have peaked
(Especially in multifamily and hotel assets)
⢠67% expect economy to perform at least somewhat better than in â16
CRE CAPITAL AVAILABILITY AT LEAST SOMEWHAT FAVORABLE
ATTRACTIVENESS OF CRE DEBT
⢠Majority expect domestic investment in debt & equity to be about the same
this year vs. 2016 (66%; 67%)
⢠Expectations for foreign investment in debt and equity are higher
⢠72% believe 50-75% of 2017 CMBS maturing loans will pay off
GAUGING SENTIMENT: CREFC MARKET
OUTLOOK
7. 7
GAUGING SENTIMENT: CREFC MARKET
OUTLOOK
LOAN ORIGINATION VOLUMES
⢠Expected to be healthy, even outpacing 2016
⢠Exceptions: banks, multifamily, hotel and construction lending.
⢠84% anticipate CMBS issuance of $50b-$100b in 2017,
⢠Plurality predict $75b-$100b
INTEREST RATES
⢠~80% of respondents expect interest rates to rise 25-100 bps
⢠Majority anticipate some impact on business performance.
EXTERNAL FACTORS OF MOST CONCERN
⢠Contagion
⢠Geopolitical trends
8. 8
LOAN ORIGINATIONS ENDED 2016 HEALTHY
⢠Lower in 2016 by just 1% compared to full-year 2015
⢠Down 7% in 4Q16
REFLECTS DECLINE IN CRE/MULTIFAMILY TRANSACTION VOLUME
⢠Lower YOY of 8% to $434.96 billion
LOAN ORIGINATION VOLUME DIPS MODESTLY
Q1 Q2 Q3 Q4 YOY Q4 Q3 to Q4 YTD-YTD
2013 123 167 166 223 16% 34% 15%
2014 122 164 193 246 11% 27% 7%
2015 182 210 217 293 19% 35% 24%
2016 182 212 227 272 -7% 20% -1%
Commercial/Multifamily Mortgage Bankers Originations Index
Percentage ChangeOrigination Volume Index
(2001 Avg. Qtr * 100)
9. 9
1. CMBS MORTGAGE
ORIGINATIONS FELL IN
2016
2. PORTFOLIO LENDERS &
GSE LENDERS THRIVE
3. NEW ALTERNATIVE
LENDERS RISE
SHIFTS IN LENDING SOURCES
YOY Q4 Q3 to Q4 YTD-YTD
CMBS
2013 15 35 33
2014 6 -3 20
2015 -2 3 6
2016 -2 5 -15
Commercial Banks
2013 54 44 32
2014 -7 59 6
2015 82 50 59
2016 -17 37 6
Life Insurance Companies
2013 40 8 25
2014 8 16 2
2015 19 17 23
2016 -6 13 0
Fannie Mae/Freddie Mac
2013 -43 48 -18
2014 119 49 33
2015 24 90 59
2016 4 8 10
Source. Real Capital Analytics.
Commercial/Multifamily Mortgage Bankers
Originations Index by Lender Type
Percentage Change
10. 10
U.S. RANKS 11TH GLOBALLY IN INFRASTRUCTURE WORLD ECONOMIC FORUM
INFRASTRUCTURE SPENDING
88%
83%
77%
74%
63%
60%
58%
54%
Quality of Infrastructure
Consumer Demand
Availability of Skilled Workforce
Regulations That Encourage or Discourage Development
Tax Structure (Development Incentives, Ongoing Tax
Burden)
Quality of Government (Transparency, Accountability,
Service)
Quality of Schools
Availability of Recreation and Cultural Activities
Quality of Infrastructure Is a Significant Driver of Real Estate Investment
Source. Urban Land Institute and EY, 2014.
11. 11
INFRASTRUCTURE & REAL ESTATE POSITIVE TWO-WAY
RELATIONSHIP
⢠Power
⢠Transportation
⢠Telecommunications
⢠Water Supply Networks
FUELS JOB CREATION AND STIMULATES ECONOMY
BI-PARTISAN SUPPORT BY HOW FUNDED?
⢠Public-Private Partnerships
⢠Public Financing - Direct Federal Spending
⢠Tax incentives
INFRASTRUCTURE SPENDING
13. 13
EXIT DODD-FRANK, ENTER CHOICE ACT 2.0?
FINANCIAL CHOICE ACT OF 2017
⢠Repeals and replaces (or reforms) Dodd-Frank
⢠Sponsored by House Financial Services Chair Jeb Hensarling (R-TX)
⢠2nd version of a proposal first introduced in 2016
ď Then focus mainly relief for well-capitalized institutions
MAIN FOCUS OF V2 STILL CAPITAL RULES / SIFI DESIGNATION
ALSO ADDRESSES:
⢠Repeal of risk-retention requirements (except for RMBS)
⢠Volcker rule
⢠Options for ending conservatorship of Fannie Mae and Freddie Mac
CMBS REFINEMENTS TO RISK RETENTION LIKELY COURSE
⢠RMBS risk retention not addressed by CHOICE ACT 2.0
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GSE REFORM A âPRIORITYâ FOR SENATE BANKING COMMITTEE CHAIR
⢠April 27, âHousing finance is one of those areas that has greater potential than
many of the others.â Senator Crapo (R-ID), Banking Committee Chair
BOTH PARTIES AGREE GSE MULTIFAMILY PERFORMANCE EXCEPTIONAL
⢠Business model works
Fully privatize or keep the Agencyâs âgovernment sponsoredâ
COMPETING ISSUES:
⢠ACA, Tax Reform, CHOICE Act 2.0, Flood Insurance, Government Funding, Debt
Ceiling
~$113B 2016 FREDDIE MAC K AND FANNIE MAE GEMS ISSUANCE
⢠Outpaces private-label CMBS issuance of $76b
GSE REFORM TARGET: LATE FALL OR 2018
FUTURE OF MULTIFAMILY GSE LENDING
15. 15
CREFC SURVEY ON GSE REFORM
If Congress put forward a GSE Reform bill, which of the
following would you support for multifamily real estate products?
Partial explicit guarantee / partial private guarantee
Partial implicit guarantee /partial private guarantee
Full government guarantee / no private business
No government guarantee / full private guarantee
Standardized single platform
Separate treatment of residential and commercial real estate
16. 16
TAX REFORM IN ALL ITS ITERATIONS
TAX REFORM FOR ECONOMIC GROWTH & AMERICAN JOBS (TRUMP)
⢠Corporations
⢠Reduction of the corporate tax rate to 15%
⢠Reduction of pass-through entities tax rates to 15%
⢠Repatriation of corporate earnings
⢠Conversion to a territorial tax system
⢠Individual tax code
⢠Individual income tax rates of 10, 25 and 35%
⢠Greater childcare tax credits
⢠Repeal of the Alternative Minimum Tax (AMT)
⢠Repeal of estate taxes
⢠No change to interest deduction and savings plan treatment.
HOUSE HAS ITS OWN PLAN, SENATE STILL PULLING ONE TOGETHER
