Commercial Mortgages: Commercial real estate is expected to ‘keep on rollin’ with another blowout year | Business News

Rock band REO Speedwagon probably wasn’t thinking about commercial real estate in the 1978 hit “Roll with the Changes,” but the song included some great advice for investors today: “keep on rollin’.”

Despite serious volatility related to the next Fed move and geopolitical instability, most participants in commercial real estate are projecting another blowout year.

Fixed rates are up from the beginning of the year, but floating rates have yet to move and, in fact, remain almost unbelievably low.

The basic premise that real estate is a good inflation hedge has pension funds, insurance companies and retail investors flooding the market with liquidity, and there is no end in sight, particularly for industrial, multifamily and health sciences buildings.

Trepp, a commercial real estate analytics firm, indicated that the number of securitized commercial mortgages that are being sent to a special servicer (indicating those assets are under stress or risk of stress) fell again in January. That is the 16th month in a row of declining balances.

People are also reading…

Of particular interest is the fact that loans on specially serviced hotels, which would have been hardest hit by the rise in COVID-19 infections due to the omicron variant, declined in January. Specially serviced retail loans dropped as well.

So while investors keep on rollin’, it appears consumers also are in the same mood.

For instance, Marriott International’s fourth-quarter results showed a staggering 144% increase in U.S. and Canada in revenue per available room, a key performance metric in the hotel industry, compared with the same period in 2020.

The results are telling and show a strong recovery in hospitality despite two years of headwinds. Several trends Marriott has been on top of: the leisure boom is leading travel recovery, and there’s a significant increase in travelers embracing multipurpose trips where they mix remote work and vacation time.

While these trends are attracting many lenders back to the hotel space, the strain of the past two years has other lenders and investors still feeling over-weighted in hotels.

Recently, a $780 million loan that was backed by 48 hotels, including the Courtyard by Marriott Richmond Airport, was brought out of special servicing because a new buyer came to the table with fresh capital.

Global investment firm KKR assumed the loan and purchased the portfolio from a joint venture between DigitalBridge and Chatham Lodging.

Commercial Mortgage Alert surveyed top lenders in the collateralized loan obligation and commercial mortgage-backed securities markets to get a sense on projected loan volumes in 2022.

Despite a record year last year in the collateralized loan obligation market, the respondents overwhelming projected higher volume in 2022. The same result came from CMBS lenders, who in 2021 recorded the best year since the Great Recession.

Money is available. The question is at what price.

The 5- and 10-year interest rates are up from last month and are now in the 3.35% to 3.55% for lower leverage deals, according to the John B. Levy & Co. National Mortgage Survey.

Floating rate debt is still cheaper, but with rate rises on the horizon, borrowers should weigh their options carefully.

John B. Levy & Co. partner and investment banker Andrew Little can be reached at alittle@ jblevyco.com.

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *