The most positive news on the commercial real estate front isn’t about economic growth, job creation or business expansion.
Sure, commercial property owners and investors need the U.S. economy to revive and companies to start hiring again.
But just as important, developers and investors need the debt markets to provide capital.
It looks as if that’s starting to happen, and the long, cold freeze of commercial property lending is at an end.
“There have been rapid improvements in the debt markets,” Robert White, president of New York-based Real Capital Analytics, said during a recent trip to Dallas for the MPF Research apartment seminar.
“The commercial mortgage-backed securities market has roared back to life,” he said. “And some community banks have also stepped up.”
Of course, the big banks have said all along that they were still in the business of funding commercial property deals – as long as you were willing to part with a kidney and didn’t need the money until after 2017.
No wonder that commercial real estate financing plummeted in the last couple of years.
But commercial property and apartment lending was up by almost a third in the most recent quarter, and the biggest jump – more than 100 percent – was for industrial buildings, according to the Mortgage Bankers Association.
Commercial mortgage-backed securities lending was up more than 900 percent from a year ago, when basically nothing was going on.
Less than 4 percent of bankers in a recent Federal Reserve survey said they are still tightening lending standards for commercial deals, the lowest such response in more than four years. Of course, that could just mean that they can’t tighten up further.
More likely, it says that the age-old lenders’ conflict between sitting on cash or lending it out for possible returns is tilting toward the borrower.
There’s even competition among lenders for the best deals.
Still, don’t expect a return to the good old days of commercial property lending from three or four years ago.
“I am starting to hear comments about very high-quality development deals being considered by construction lenders, but with a very strong equity requirement, on the order of 35 percent,” said Charlie Mohrle of Dallas-based Mohrle-Morris & Associates.
Mohrle said bank examiners and regulators are still keeping a tight leash on commercial real estate deals.
But if borrowers can swing the deal, they can take advantage of some of the lowest finance rates in more than a generation.
“I cannot help but think that in a few years the ability to borrow long-term, fixed-rate capital at an interest rate below 6 percent will be wistfully referred to as ‘the good old days,’ ” he said.
There’s still plenty of uncertainty in both the economy and real estate markets.
Commercial property prices across the country are down about 40 percent from their peak in 2007.
And in the third quarter, nationwide commercial property prices drifted about 7 percent lower, according to the MIT Center for Real Estate’s regular report.
The decline came as commercial property transaction volumes rose to their highest level in three years.
“Usually price and volume move together in the property market, so the overall result again sends a mixed signal,” David Geltner, director of research at the MIT real estate center, said in the report.
Given the last few years, a mixed signal is better than no signal at all.