Commercial mortgages: Commercial real estate set to ‘keep rolling’ with another explosive year | Economic news
Rock band REO Speedwagon probably wasn’t thinking commercial real estate in the 1978 hit “Roll with the Changes,” but the song included some great advice for today’s investors: “keep rolling.”
Despite high volatility related to the upcoming Fed decision and geopolitical instability, most commercial real estate players are anticipating another explosive year.
Fixed rates have been on the rise since the start of the year, but floating rates have not moved yet and, in fact, remain incredibly low.
The basic principle that real estate is a good hedge against inflation causes pension funds, insurance companies and retail investors to flood the market with cash, and there is no end in sight. , especially for industrial, multi-family and health sciences buildings.
Trepp, a commercial real estate analytics firm, said the number of securitized commercial mortgages that are sent to a special manager (indicating these assets are under stress or at risk of stress) fell again in January. . This is the 16th consecutive month of decreasing balances.
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Of particular note is that loans to specially equipped hotels, which would have been hardest hit by the increase in COVID-19 infections due to the omicron variant, declined in January. Loans to individuals benefiting from a special service also fell.
So, as investors continue to ride, it seems consumers are in the same mood as well.
For example, Marriott International’s fourth quarter results showed a staggering 144% increase in revenue per available room in the United States and Canada, a key performance metric in the hospitality industry, compared to the same period in 2020.
The results are eloquent and show a strong recovery in the hotel industry despite two years of headwinds. Marriott has followed several trends: the leisure boom is driving the resumption of travel, and there is a significant increase in the number of travelers embracing multipurpose travel where they mix remote work and vacation.
While these trends are attracting many lenders to the hotel space, the pressure of the past two years has other lenders and investors still feeling overweight in hotels.
Recently, a $780 million loan secured by 48 hotels, including the Courtyard by Marriott Richmond Airport, was pulled from special service because a new buyer came to the table with new 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 major lenders in the secured loan bond and commercial mortgage-backed securities markets to get an idea of projected lending volumes in 2022.
Despite a banner year last year in the secured loan bond market, respondents overwhelmingly forecast higher volume in 2022. The same result came from CMBS lenders, who in 2021 had the best year since the Great Recession. .
The money is available. The question is at what cost.
5- and 10-year interest rates are up from last month and are now between 3.35% and 3.55% for low-leverage trades, according to the National Mortgage Survey from John B. Levy & Co..
Variable rate debt is always cheaper, but with rate hikes on the horizon, borrowers need to weigh their options carefully.
John B. Levy & Co. partner and investment banker Andrew Little can be reached at [email protected]