Commercial Real Estate Trends To Watch In 2017
This year held some surprises that could have an impact on commercial real estate, and the economy as a whole, in 2017. Here’s a look at five commercial real estate trends to watch in the coming year.
CMBS lending has slowed down this year, even as 10-year CMBS loans from the pre-recession boom continue to come due into 2017. And non-bank lenders like Blackstone are picking up some of the slack.
One presumed reason for the slowdown is that lenders are gearing up for the Dec. 24 implementation of the risk-retention requirement, the so-called “skin-in-the-game regulations” that are part of the Dodd-Frank Act and require sponsors of commercial mortgage-backed securities to hold on to 5% of every new deal or assign the risk to a B-piece buyer.
Overall, the top 10 non-bank lenders made up 13% of New York City commercial real estate lending in Q3, according to a CrediFi analysis.
The Federal Reserve announced this month it is raising interest rates by a quarter of a percentage point.
In addition, the Treasury yield moved up more than 50 basis points since the Nov. 8 presidential election, and was hovering around 2.5% ahead of the rate hike.
Some analysts are citing an expectation of growth based on economic stimulus, deregulation and a planned infrastructure program, as well as a bigger deficit, which can trigger inflation and higher interest rates. Concerns remain about the impact of a much-discussed trade reduction and potential friction between the U.S. and other world powers.
Higher interest rates could constrain property deals by making real estate less affordable, but it can also provide an incentive for borrowers and lenders to be more cautious in a bid to reduce risk. And higher interest rates typically signal a strong economy, which tends to be associated with a strong real estate market.
President-elect Donald Trump has called the Dodd-Frank Act a “disaster” and a “disgrace,” and his transition team says it “will be working to dismantle” it. Experts have said that while it seems unlikely the law will be totally repealed, its effect could well be reduced under a Trump administration.
Less regulation is easier for financial institutions in the short term, and deregulation supporters argue that excess requirements stifle lending. Yet if overly relaxed standards result in looser lending practices, a high-risk environment could ultimately lead to another financial crisis, and that won’t be good for banks, commercial real estate or the Multifamily Leasing Technology economy in the long term.
White House and Wall Street
The extent of changes to financial legislation will depend in part on who’s in charge. Trump’s pick of former Goldman Sachs banker Steven Mnuchin as the next secretary of the treasury and Goldman president Gary Cohn as director of the National Economic Council is a good indication that regulatory changes are planned, not least because Mnuchin has explicitly said his No. 1 regulatory priority is to “strip back parts of Dodd-Frank that prevent banks from lending.”