CRE Finance Momentum Buoyed by Vaccine Optimism

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The future looks bright for U.S. commercial and multifamily real estate, according to a new survey of industry leaders in the recovery from the coronavirus pandemic from the CRE Finance Council (CREFC), the trade association for the commercial real estate finance industry, headquartered in New York City.

The vast majority of these experts expect the U.S. economy – and commercial and multifamily real estate — to fare much better in the pandemic and its recovery than the 2008 Global Financial Crisis. Lenders have returned to making loans. Worries have evaporated that government inaction would trigger a crisis for real estate. A few respondents worry interest rates may rise – but even those fears seem relatively muted.

“The continued surge in optimism among our board members is undoubtedly punctuated by the impact of vaccine distribution and pent-up investor demand,” stated Lisa Pendergast, executive director of CREFC. “The latest survey results and continued momentum reflect how far the commercial real estate industry has progressed.”

CRE Finance Experts Most Optimistic in Years

Overall, the experts surveyed are more optimistic than they have been in years, according to CREFC’s Board of Governors CRE Finance Sentiment Index, which measures the responses by the council’s Board of Governors to the main ten questions on the survey. The board includes nearly 60 top executives from every part of the commercial real estate lending and mortgage-related debt investing markets.

The index rose to 118.7 in the first quarter 2021 — a huge improvement from 71.6 at the end of the first quarter 2020 as a shocked world entered the pandemic. It’s also much higher than 100.1 in 2019 and 94.1 in 2018, when the U.S. economy was still expanding.

The U.S. economy overall is expected to perform better in the next 12 months compared to the last 12 months of the pandemic year, according to the vast majority (95 percent) of CREFC’s Board of Governors. That’s a significant increase from 77 percent in the fourth quarter 2020 and 53 percent in the third quarter, when an uncertain recovery from the worst of the crisis was already underway, but not all real estate experts trusted it.

The latest survey also included a few extra questions about the coronavirus crisis and recovery.

Commercial and multifamily real estate will ultimately fare better during the coronavirus crisis compared to the 2008 Global Financial Crisis, according to the vast majority (95 percent) of CREFC’s Board of Governors in April 2021. Only 5 percent thought CRE would fare worse. They were not always so certain – more than half (54 percent) had thought CRE would do worse in the coronavirus crisis in the April 2020 survey.

Borrowers can also get the financing that they need for commercial real estate deals. Most of the lenders on the Board (71%) reported that their lending programs are fully operational. Only six percent say they are not making new loans (compared to nine percent in the prior quarter).

The overall volume of loans made to commercial and multifamily real estate is likely to be higher in 2021 than in 2020, according to most Board members (88 percent). More than half (56 percent) expect the volume of lending to increase by at least 20 percent.

About a quarter (28 percent) worry that expected trends in mortgage interest rates will negatively impact the performance of all business related to commercial and multifamily real estate finance over the next 12 months. That’s the highest those worries have been in several years, but still relatively low.

The board was a lot less worried the government’s failure to act would hurt commercial and multifamily real estate. Only 18 percent thought that lack of government-sponsored relief would lead to greater distress for the CRE industry in the April 2021 survey. In comparison, more than half (56 percent) of respondents thought the lack of relief would create great distress in the fourth quarter of 2020, before Congress finally passed the $1.9 trillion American Rescue Plan in March 2021, including billions of dollars in rental assistance and other support for the U.S. economy.

The worries of these experts were concentrated on parts of the commercial real estate business that were likely to recover more slowly like hotels that serve business travelers and retail sites, as multifamily remained a stable asset class throughout the last year.

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