Retail Traffic: Commercial mortgage originations hit another record in 2006. What's the outlook for 2007?
Jamie Woodwell: Most of the factors that were in place last year remain in place today. We have a growing economy, strong capital flows into real estate and strong loan performance. Given the forecast that these will all remain with us through the coming year, we expect strong originations in 2007, at levels similar to 2006.
RT: What's your view of the retail sector more broadly in 2007 and how will this impact originations on retail properties?
Woodwell: MBA's most recent economic forecast calls for continued economic growth through 2007 — albeit at a slightly slower rate of growth than during 2006. We also see consumer spending holding up. That bodes well for the retail market. As always, different markets and different properties will see different conditions, both in terms of demand for and supply of space, but overall, this should support retail originations.
RT: The meltdown in the sub-prime residential mortgage market has sent shudders through the stock market and seemed to raise some jumpiness about mortgages in general. Does the commercial side have anything to worry about because of this?
Woodwell: The commercial/multifamily finance market is now part and parcel of the global capital markets. As a result when the financial markets experience a change, the commercial/multifamily markets feel it too. So whether the markets are reacting to news about a sector of the single-family market or a drop in the Chinese stock market, the commercial/multifamily markets are connected. In the past decade this connection has been a huge positive in bringing more capital and liquidity to the U.S. real estate markets.
RT: How has the level of securitization altered the mortgage business? So far it seems like it's been a net positive, creating transparency and helping contribute to greater origination levels. Are there any risks lurking?
Woodwell: Securitization has been a great tool in connecting global capital to commercial/multifamily real estate. It has given investors a whole new menu of investment options and has given real estate borrowers new ways of accessing capital. And as you mentioned, the level of transparency is growing all the time.
RT: The Federal Reserve recently reported that there is now $2.95 trillion in commercial and multifamily mortgage debt outstanding. Do you have any concerns about the total level debt on commercial properties in the United States?
Woodwell: Commercial real estate is a huge asset class in this country so it makes sense that it would have a large debt market associated with it.
RT: For a few years, interest rates were really low and there was a rush to get new loans and refinance old ones. Is there a refinancing risk when these loans come due?
Woodwell: Refinance risk and the impact of new construction are probably the two most common answers when industry professionals are asked what could slow the industry down. If conditions at a loan's maturity are significantly different from what they were at its underwriting, it increases the concern about repayment. As always, underwriters, rating agencies and investors are working to balance forecasts of interest rates with forecasts of rent growth and appreciation and come up with the appropriate underwriting.