CRE Professionals Confident in Activity Through Year-End

Mortgage banking and investment sales professionals remain bullish on the commercial real estate market and are turning their attention toward affordable housing as an emerging asset class, said Berkadia, New York.

Berkadia’s Mid-Year Powerhouse Poll surveyed CRE professionals about their activity so far this year and their prediction about where the industry is headed.

When asked what multifamily investment trends are on their radar for the rest of 2019, investment sales brokers most frequently cited interest rates (94 percent), debt underwriting (69 percent) and the political environment (40 percent). For trends affecting multifamily financing, mortgage bankers ranked interest rates (97 percent), green financing (49 percent) and the political environment (46 percent) as the top contenders.

“While we’re always keeping an eye on changes that could come [from Washington, D.C.], we continue to be impressed with the amount of capital flow that’s gone into the commercial real estate market so far this year,” said Berkadia Executive Vice President and Head of Production Ernie Katai. “After sustaining four interest rate hikes last year, the industry is continuing full steam ahead and preparing to adjust for regulatory changes as they come.”

Despite regulatory uncertainties including several rent control proposals, the industry’s confidence remains healthy following a strong first half of 2019 during which deal volume met the expectations of nearly half of respondents. Berkadia reported one in four respondents said deal volume has exceeded their expectations so far in 2019. Nearly 60 percent of respondents said they anticipate the capital available for deals will remain steady through the rest of the year and 29 percent said they expect capital on the table will increase.

With single-family home prices and construction costs rising, affordable housing has jumped to the forefront of many commercial real estate conversations. The report said 84 percent of people surveyed agreed that affordable housing will have a major impact on the industry over the next year. When asked what could improve the affordable housing situation, respondents ranked modifying tax credit policy (84 percent), regulatory changes for the GSEs (70 percent) and local and state government intervention (69 percent) as top potential solutions.

“The buzz around a growing need for affordable housing has been building for years but escalated this spring when the Department of the Treasury announced the second set of Opportunity Zone regulations,” Katai said. “As individuals and families in metros and suburbs across the country continue to struggle with rising rent costs, investors are no longer focused solely on Class A housing. Many are diversifying their portfolios by adding affordable properties to the mix. We expect tax incentives and other strategies that encourage the growth of this asset class to continue to evolve on a federal, state and local government level.”