NEW YORK CITY-In a look ahead at 2014, members of the Real Estate Lenders Association are flush with good news for the borrower community. In its fourth survey of commercial real estate lender sentiment, RELA found that lenders project substantial growth in commercial real estate lending volume over the next year, and that market-underwriting standards are expected to ease for office, retail and industrial properties.
Additionally, lenders report that target debt yields for new loans have declined in the past year—despite higher Treasury yields. The survey features analysis by RELA's national economist Dr. Sam Chandan, president and chief economist at Chandan Economics and a professor in the associated faculty at the Wharton School.
“Pressure on underwriting standards will be most acute where lending is growing substantially faster than borrower quality is improving. For credit risk officers, projections for rapid growth in CMBS issuance warrants scrutiny of upcoming deals," says Chandan.
The research indicates that a net share of 48% of lenders expect to grow the dollar volume of their lending activities over the next year, with more than 50% of lenders anticipating an increase of loan originations in the multifamily, office and retail sectors, respectively. Survey respondents also expect pricing to decline and loan demand to increase for both term and construction lending over the next year.
A majority of lenders expect underwriting standards for office, retail and industrial properties to ease in the coming year. However, expectations for multifamily and hotel terms were more reserved, likely due to a more mature recovery in the multifamily sector and higher perceived risks in hotel lending.
Lenders reported a current target debt yield centered between 8% and 8.5% for new multifamily originations, while the anticipated target debt yield range for commercial properties was 150 basis points higher at 9.5% to 10%.
However, the research states, while debt yields have fallen over the last year, fewer lenders expect that trend will persist as interest rates rise.
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Rayna Katz
Rayna Katz is a seasoned business journalist whose extensive experience includes coverage of the lodging sector, travel and the culinary space. She was most recently content director for a business-to-business publisher, overseeing four publications. While at Meeting News, a travel trade publication, she received a Best Reporting award for a story on meeting cancellations in New Orleans during Hurricane Katrina.
