Highlights from CREF 2016

commcercial buildings

This week in Orlando MBA held its CREF/Multifamily Housing Convention & Expo. It was wonderful to see and visit with so many of our commercial and multifamily finance MBA members.

As I have said for some time, commercial and multifamily businesses thrived through the recession and continue to do well. Rents are up.  Vacancy rates are down.  Prices are up.  Cap rates are down. Lending volumes are up.  Delinquency rates are down.  And, for the coming year, the outlook remains solid.  Through MBA’s CREF Outlook Survey, leading originators told us they expect commercial and multifamily mortgage lending to continue to increase in 2016. 

But with that success comes new challenges.

With most foreign markets facing economic headwinds, investors are seeing the American market as both lucrative and safe. Today the $3 trillion commercial market is a very attractive investment to many in the U.S. and worldwide.  U.S. commercial real estate lending is quickly emerging as the world’s fourth major global investment asset class.  Whether you look at the Chinese economy, or how much oil prices have dropped, or questions about the public debt of many foreign countries, the strength and stability of the U.S. commercial real estate market looks very attractive right now.

Lenders’ appetites for new loans remain strong, and with strong market fundamentals and the 10 year loans made during 2006 and 2007 maturing this year and next, lenders also anticipate strong demand from borrowers.  Loans for all major investor groups are expected to increase in 2016.  In the CREF forecast we released on Monday, MBA anticipates that this year commercial and multifamily mortgage bankers’ originations will set a new record — passing the $508 billion mark set in 2007.

On the multifamily side, rental properties remain very attractive for many households.  So we continue to keep a watchful eye on housing demand for potential opportunities and risks for all segments of the real estate finance market.  Currently, the scales are still tipping in the rental community’s favor.  Through the recession, homeownership rates dropped and more households became renters.  Demographic changes over the next decade point to a massive wave of household formation according to MBA’s recent housing demand study.  With between three and six million additional renter households expected, the demand for affordable rental housing is only expected to grow.

But will households be able to afford rental costs?  The number of American households who rent their homes stands at an all-time high.  Unfortunately, household income dropped in recent years at the same time the cost of constructing rental properties and real rents have increased.  Recently MBA released a white paper on affordable housing noting that a quarter of renter households today are paying half or more of their income on housing.  The need to expand the availability of affordable rental housing has rarely been greater.

Affordable, stable housing contributes to a sense of housing security that can have far-reaching impacts on communities.  MBA will continue to play a leading role to promote housing that is both affordable and sustainable.

The outlook for commercial and multifamily finance remains positive in 2016, but that does not mean there won’t be challenges ahead. I am confident that if our industry continues to stand together and speak with one voice, the CMF landscape will remain bright for years to come.