Institutional Lenders to Place Record Capital into Commercial Real Estate in 2014

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LIVE FROM MBA: It is hard to believe that just seven short years ago, an economic collapse sent the U.S. debt markets into a tailspin, and the commercial real estate industry was left holding near valueless paper and underwater investments across the nation. Now, commercial property investors and lenders have a new attitude, and it seems they are just as confident as the peak market days. Industry experts attending the Mortgage Banker’s Associations’ (MBA)  in Orlando this week caution, there are fundamental differences in today’s optimistic outlook.


U.S. CMBS Issuance

While money isn’t exactly flying from the sky, it is flooding into real estate in record-numbers from the conduits, according to JLL’s Cost of Capital report. U.S. CMBS issuance peaked in 2007 at $230 billion. In 2013, CMBS issuance reached a post-recession high with $86.1 billion of new issuance, up 78.0 percent from its $48.4 billion level in 2012. Highly-rated CMBS spreads are also low from a historical perspective and remain stable, tightening by 20 bps since the start of the fourth quarter 2013, and into 2014.

Looking at the retail sector, there is plenty of debt capital at spreads in the 150 to 200 bps over swaps for 10-year fixed rate deals.  With the recent pullback in treasuries, trophy assets and those with long-term credit in rent rolls may be able to achieve financing in the low to mid-4 percent range for 10 years.  For smaller deals and those in transition, debt funds are filling a nice void in the debt markets with floating rate pricing in the 6 percent range. The net lease market is pricing incredibly strong from life companies with cap rates of sub-5 percent and debt yields at 7 percent for 15 to 20 year full amortized, investment-grade deals.

Wondering about other property sector financing? Read more about office, industrial, multifamily and hotels. 

Don’t stop reading here. Connect to all of JLL’s market resources:

  • For more information on market financing view JLL’s Cost of Capital report
  • Interested in hearing more about the global capital markets? Please attend JLL’s Global Market Perspective Webinar to learn valuable insights directly from our economist and property experts Wednesday, Feb. 5 from 10 to 11 EST. Register now:
  • For more news, videos and research resources on Jones Lang LaSalle, please check out the firm’s INVESTOR e-magazine


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