CRE Finance Council June Convention, New York City

By Kerrie Addante-Jacobs, Distressed Commercial Sales for FNT

The announcement that we have already experienced, on a national level, the worst in the commercial real estate market created a positive energy surrounding the convention. Commercial real estate values appear to be stabilizing, and the debt capital markets have become far more accommodative over the past several months.

The uncertainty that surrounds the ability of maturing loans to be refinanced is still a major concern to many legacy CMBS (Commercial Mortgage-Backed Security) investors. The “maturity wave” has already begun to ramp up.

-Nearly $60 billion of fixed–rate CMBS loans have matured since 2009, including $6.4 billion in 2011.

-An additional $26.8 billion is scheduled to mature before year end, with another $47.2 billion slated to mature in 2012.

-Whether these maturing loans perform, default or are modified, they will most certainly impact a large amount of CMBS investments over the coming years.

-Although lenders will likely continue to focus on debt yield when resizing loans, they may place more emphasis on DSCR (Debt–Service Coverage Ratio) if commercial mortgage rates begin to rise.

Different property types are recovering at varying rates, but the path is decidedly positive for net operating income.

-Office vacancies have fallen from 17.6% to 17.5% in the first quarter of 2011. This is the first time in three years this sector recorded a dip nationally.

-Retail properties continue to remain slightly distressed with shopping center vacancies at 10.9% nationally, a 19-year high. However, with retail sales picking up due to increased consumer spending, this should be beneficial to retail tenants. Retail properties may need another quarter or two before occupancy rates stabilize, but are still considered a great investment with tenants locked into long term leases.

-Multi-family properties vacancies declined sharply in 2010 to 6.6% from a 30 year high of 8.0%. Vacancies are expected to dip again to 5.5% by the end of the year.

-Rent growth for some supply-constrained submarkets may exceed 10%. There is a concern due to the positive press for multi-family assets that bidding wars may be more common and lead to the temptation to overpay.

Overall, commercial real estate properties are expected to generate total returns of about 9.3% per year from 2011 to 2015. Being cognizant of market trends and property types and focusing on assets that provide the optimal blend of returns from income gains and value appreciation are the basic rules of good real estate investing.


*Figures provided by Trepp and Citi Investment Research and Analysis