Your thoughts on this article. 30% in NYC...cmon.
Falling Prices
Signs of a cooling real estate market have emerged across the country since the start of the year. Commercial-property values in big U.S. cities, which have seen the largest increases during the recent boom, have declined 3 percent in the past three months, Moody’s Investors Service and Real Capital Analytics Inc. said in a June 6 report. Real estate transactions in New York, the biggest U.S. property market, are forecast to decline by as much as 30 percent this year, brokerage Cushman & Wakefield said in April.
We are certainly seeing a disconnect right now between capital markets-the number of properties on the market and demand for said properties has fallen off a cliff while factors such as absorption, vacancy and rental rate growth are still clipping at a good rate-at least in the markets our fund plays in.
Hah, tell them to fuck off. I need a job in 2017. I don't need this kind of negativity.
Lmao. You want prices to stop rising so you can pencil in new deals, but you also don't want the markets to stop so you can keep your job. So is the catch 22 of an acquisitions associate.
There has been a panic over the "maturities wall" 5, 7, and now 10 years since 2007, but no real fallout yet. CRE in general is healthier than it was in '12 and '14. And Risk from low oil prices? Maybe if you are in Odessa/Midland, which I am pretty sure PIMCO is not. The Houston's of this world are way more diversified than they were years ago. Not to say they won't feel any burn, but I think this is overstated. Agree with the other points.
Houston is still sucking wind. CoStar and REIS are projecting negative rent growth for 1-3 years out depending on the submarket. Lenders will only go to 70% LTV and 1.35x coverage which makes a high cap rate near useless. Additionally, no one wants in to Houston now.
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The Houston Oil market has been in the shitter for 2 years now. Oil built Houston. Without oil people have little incentive to live or work there.
I was talking with a guy at PNC Bank. He's in Asset Management for CRE loans. PNC has a ton of securitized deals they are not going to rewrite for many reasons. Because of this they have created several roles/departments that can refer the PNC borrower with a ballooning note to the appropriate subsidiary lender within the PNC family. If all else fails they created an additional division basically to broker the ballooning deals and take fees.
Basically, PNC Bank is doing what they can to keep their books clean and make money through all this.
Did my best to get referrals from this guy a few times but he's not biting.
As an aside, I was at a CREFC event a few weeks back and the head of CMBS research at Wells Fargo said that today, 95% of all CMBS loans are getting refinanced. He wasn't suggesting that this trend will hold up forever or that the wall of maturities won't have an impact, but it is worth noting nonetheless.
At the moment, I guess I could say I'm seeing the same thing. Acquisitions may be hard, but stabilized deals are getting loans rather easily.
Good. Let some air out of the price run-up and keep new development in check
I feel like new developments are getting over extended. I wonder if it'll be like the mid 80's building boom/bust all over again.
"I feel like new developments are getting over extended. I wonder if it'll be like the mid 80's building boom/bust all over again." - I doubt that. If there was a setup in the national CRE market at all comparable to the 80's/S&L/RTC days it would have been the 2000s through GFC, and as a lot of grey haired guys would have it, we didn't see the same plethora of developer rout and bargain basement pricing a few years ago as you did after the 80's. The level of spec development and easy financing going on right now pales in comparison to back then. Some people I talk to credit the relatively less cataclysmic CRE situation over the course of GFC to the institutionalization of real estate as an asset class. Going into GFC (and like there is again now) there was a lot of dry powder waiting in the wings to come in and buy distressed. There were people around to set a price floor. Simplistically, not ideal if you like buying deep value, good if you're a policy maker or prefer the stability.
Piggy backing on Build the wall and speaking specifically on multifamily (but this applies to other property types its just the examples would be different - suburban office comes to mind), there are plenty of submarkets not only in houston but also in other markets that are experiencing real negative rent growth. I know in DC that there has been negative rent growth in plenty of submarkets for mf product. Its not surprising, as there has been an abundance of new supply - mostly high end, highly amentized product - added and no real wage/income growth. The competition to get stabilized during a period of increased supply has led to rents getting cut and concessions going up.
At our bank, we have become super selective about the deals we do - great markets, experienced client, Class A properties and good cash flow - hardly any reposition-renovation type stuff except for most experienced of operators with great balance sheet. Construction deals are now escalated to the top of the house for approvals so needless to say few make the case successfully.
^I'm not making a call on oil but 2 years is too little time for a city to die (except Williston ND maybe). So let's say oil stays at a sustained low - does Houston eventually go the route of Detroit? Detroit's industry was under siege by foreign competition long before it blew out, and even then its final death knell was helped in a big way by municipal fiscal mismanagement plus GFC. How about Phoenix, where homebuilding was its primary industry? Phoenix isn't posting the growth it did last decade but it's been almost 10 years since that party stopped and it hasn't become a ghost town either
Houston won't turn into Detroit ever. There are also other industries. The oil industry is not gone and will not be for a long time. Just low prices/profits.
My best guess is we'll see less "oil money" floating around and a little less extravagance there. Still a good big city, just not everyone will be clamoring there for the oil boom in regards to white collar professionals. Upper middle class real estate, less money spent on going out, less money spent on nice cars, etc.
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