The combination of an abundance of capital, improving property markets and innovative financing vehicles such as commercial-debt obligations (CDOs) are boosting lending volume to unprecedented heights, says Jamie Woodwell, MBA’s senior director of commercial and multifamily research.
“There are a number of fronts parked over the commercial/multifamily world that are leading us to some pretty calm seas,” says Woodwell. The researcher’s remarks came during a media luncheon at the Marriott hotel in downtown San Diego on Monday as part of MBA’s annual commercial/multifamily convention. The event has drawn about 5,000 attendees.
The latest MBA figures show that an extremely healthy lodging industry has become a lending magnet. Total loan originations for hotels rose 20% in the fourth quarter over the same period a year earlier. Loan originations for office properties climbed 8%, followed by industrial (3%) and multifamily (2%). But loan originations for health care and retail properties dropped 7% and 5%, respectively.
Property fundamentals nationally are encouraging for the near term, says Woodwell, with new construction held largely in check. Still, one potential threat to today’s “perfect calm” is the refinancing of properties. “These mortgages that are made now, when they come due, most have a balloon payment associated with them,” explains Woodwell. “To the degree that there are market conditions vastly different from today, there will be an issue with the refinancing of some of those [properties]. That’s a factor that’s being taken into the underwriting and pricing of these loans.”
Meanwhile, Doug Duncan, chief economist for the MBA, offered a “fairly sanguine” outlook for economy in 2007. Among his predictions:
• The U.S. economy will grow more than 3% this year, with slightly less growth of 2.25% in the first quarter.
• The Fed Funds rate, currently 5.25%, will remain unchanged over the next 12 months.
• The 10-year Treasury yield is expected to inch up to 5% a year from now, up from 4.81% today. The abundance of capital globally that’s pouring into real estate is holding down long-term rates and is likely to do so over the next decade, says Duncan.
• The U.S. unemployment rate, currently 4.6%, is expected to tick up only slightly as the full impact of the housing slowdown is felt. That figure compares favorably with the 35-year unemployment average of just over 6%.
The economy grew at 3.5% in the fourth quarter of 2006, but if the housing and automobile figures are stripped away, real GDP for the quarter rose to a robust 5.8%, says Duncan. “This is an economy that has lots of resilience.”