The economic downturn caused by the COVID-19 pandemic is unlike anything the U.S. has previously seen. And so this updating of MBA's commercial real estate finance (CREF) forecast can be viewed as an exercise in hubris, or folly. We generally agree.
The $3.7 trillion commercial and multifamily mortgage market is really a confederation of different capital sources, property types and geographic markets, all bound together by the provision of mortgage capital backed by investment property incomes and collateral value. Often, the overall market moves in tandem. At other times - like now - different segments act very differently.
Richard Barkham, Global Head of Research and Chief Economist at CBRE, and Jamie Woodwell, Vice President of Commercial Real Estate Research at MBA, discuss how the COVID-19 outbreak has had an immediate effect on commercial real estate fundamentals and capital market activity. The reduction in economic activity that followed social distancing, the sharp stock market drop, and mass layoffs has a direct impact on real estate occupancy, lending, valuations and investment. The panel will share their observations and outlooks across property types using a combination of high-frequency data from the commercial mortgage and leasing markets with the early observable impacts on Q1 2020 property performance.
Jamie Woodwell, Vice President of Research and Economics at Mortgage Bankers Association (MBA), joined the RealCrowd Podcast to discuss commercial real estate during COVID crisis.
For commercial real estate (CRE) markets, a key factor in how we work through this period of uncertainty will be how investors value properties and their incomes. Our experiences in the past two recessions may provide some insights.
As we've said before, the bad news is that there is a great deal of uncertainty about how the virus will play out in the US, how we will react publicly and privately and what the impact will be on the economy. The good news is that the economy and commercial real estate markets are entering this period from a position of considerable strength.
Last week, the week of February 24, 2020, financial markets recognized that the Coronavirus has arrived in the United States. Prior to that, most articles and analyst reports that discussed the economic impact of the virus focused on declines in foreign demand for US goods, or disruptions to international supply chains. With community-spread cases detected in the US, that focus began to turn inward.
Low mortgage rates, strong property price appreciation and a larger multifamily debt market. Will we see more of the same in 2020?
After a slow start in 2019, the commercial mortgage-backed securities (CMBS) market ended strong, with $39.1 billion of private-label CMBS issuance during the fourth quarter - more than double the $18.8 billion issued during the fourth quarter of 2018. Overall, CMBS issuance in 2019 came in at $97.8 billion, 27 percent higher than 2018 and the strongest year since 2007.
Commercial and multifamily real estate markets got a shot in the arm from low interest rates in 2019. In addition to making mortgage borrowing less expensive, lower yields on a broad array of investment options are buoying the values of industrial, apartment, office, retail and other income-producing properties.
Given how low cap rates are, even a small change in terms of basis points could mean a significant change in value.
Given the current economic uncertainty, it's fair to assume that different paths for the US economy could lead to very different outcomes for commercial and multifamily mortgage demand and supply.