Ernie Katai

Interest rate hikes, GSE lending confidence and adapting new technologies are all on the forefront this year as commercial real estate professionals reflected on 2018's deal flow and anticipates new year opportunities, according to Berkadia's 2019 Outlook Powerhouse Poll.

Interest Rates

As the commercial real estate industry navigated four interest rate hikes last year, investors still accepted less returns and ended the year on a high note as 82% said that deal volume either met or exceeded their expectations for the year. Berkadia's professionals are now keeping a close eye on interest rates in 2019 and investors may not react as favorably to as many rate hikes.

“This year, we may see the commercial real estate industry hit the reset button after a dynamic past 12 months. The market absorbed the heavy interest rate increases of 2018, but interest rate uncertainty in the year ahead could impact the current level of investor interest,” said Ernie Katai, Executive Vice President and Head of Production at Berkadia. “That being said, available capital remains strong and we may see more larger-scale transactions than in years past.”

For example, an owner of a building may have a specific dollar amount in mind for the value of his commercial property but when interest rates rise and uncertainty in the market looms, the actual price point of his property may decline and interest in purchasing his property may drastically fall. There is always an impact with every interest rate increase, especially in the real estate market and industry professionals are fully aware of the trend but remain cautiously optimistic.

GSE Lending

As the Government-Sponsored Enterprises (GSEs) are typically tied to the political climate, CRE professionals are closely watching the government to determine any developments with 82% of respondents still expecting GSEs to provide most of the financing this year. Last year, $140 billion worth of business was done with GSEs, Katai tells GlobeSt.com.