Broeksmit: CRE Cycle Not About ‘Innings,’ but ‘Phases’

SAN DIEGO–Commercial real estate has cycled up and down and up again over the past 15 years. But since 2015, CRE has been in a “new phase,” said Mortgage Bankers Association President and CEO Bob Broeksmit, CMB.

“Commercial real estate is a notoriously cyclical business,” Broeksmit said here at the MBA CREF/Multifamily Housing Convention & Expo. “For the last three years one of the most popular questions here at the CREF Convention has been, ‘What inning are we in?’ In reality, many expected this game to have ended by now and the market to start a down-leg. Instead, we’re in a new phase, something we have never seen before–a plateau.”

Broeksmit said this plateau is preferable to a decline. “I’m sure you’d agree,” he said. But he noted the commercial/multifamily business is entering uncharted territory. “Economically speaking, global growth rates have slowed,” he said. “And there is likely more domestic slowdown ahead. U.S. interest rates continue to fluctuate, but yields are flattening.”

The entire real estate finance business is changing, Broeksmit said, citing the effect e-commerce growth is having on the retail sector and how apartment ‘buildings’ are transforming into apartment ‘communities’ that provide dining, grocery and pet services at residents’ doorstep. “Socially speaking, how people buy and live are transforming almost all property types,” he said.

In the office sector, technology is transforming where and how we work, Broeksmit said. “Ultimately, this changes the nature of buildings and how we interact with them and with you,” he said. “Today, more employers encourage telecommuting, which is reshaping office space. Video conferencing reduces the need for meeting space and decreases transportation requirements.

How and when will these influences impact commercial real estate investment, borrowing, lending and business strategies? They already are, Broeksmit noted, identifying other changes affecting commercial real estate. “Asian investment in U.S. CRE has dropped by nearly one-quarter over the last year, but this was offset by major purchases by Canadian investors,” he said. “And mortgage real estate investment trusts, debt funds and other investor-driven lenders are drawing new capital to commercial real estate finance markets, growing by 12 percent in the first half of 2018 alone.”