Another lender announces slow down for CRE credit

Credit for commercial real estate (CRE) looks to be entering a crunch state in the second half of 2022 as a number of the big lenders announced in July that they were pulling back in that sphere.

The latest to make such an announcement are Signature Bank and M&T Bank. The former said it “expected to cut back on lending for multifamily and other commercial real estate assets”, and the latter laid the blame squarely at the feet of higher interest rates in its decision to make “fewer CRE loans this year”.

Construction slump

M&T’s CRE loan balances decline by 2%, or $830m in Q2 2022, as reported by the Real Deal, who extracted key takeaways from an earnings call hosted by M&T chief financial officer Darren King. King reportedly specified that construction loans declined, alongside a decline in completed projects and new developments coming online.

Interest rates and inflation

King said the rates moves were “affecting cap rates and asset values” and that they were “not seeing the turnover in properties like you might have under normal circumstances. And that will affect the pace of decline and our growth in permanent CRE.”

According to BisNow reporting, “Interest rates, raised in an attempt to beat back record-high inflation, have contributed to a drop in investment volume from the highs of 2021 and early 2022, slowing CRE deal volume”.

Global pressures

In broad term, these economic conditions are seen at varying rates around the world right now. As S&P’s recent update explains: “Economic growth is slowing. Interest rates remain stubbornly high. Estimates of the risk of recession or even stagflation creep upward and questions persist on whether central banks are under- or over-reacting in pursuit of monetary normalization.”

Additionally, on the residential side, their PMI research indicates “a steep contraction in demand for real estate amid tightening financial cost of living”.

Social: How is the rising cost of living playing out in your market?

Top Tech partner: Apollo Energies

Those keeping track of our ongoing Top Tech series will know that this regular blog is aimed at highlighting some of NAI’s key tech partners and the game-changing solutions they bring to the commercial real estate (CRE) space. These are not sponsored blogs, but rather a way for us to share tools, technology, and ideas that are changing CRE for the better and streamlining and improving the services we offer.

This month’s partner is Apollo Energies. Below we discuss their approach to creating carbon-free properties and helping clients hit ambitious Environmental, Social, and Governance (ESG) goals.

What does Apollo Energies do?

The starting point for Apollo’s commercial services is typically an energy audit that helps clients determine the best way to streamline their building’s operations and bump up energy efficiency. Apollo also advises clients on how to meet safety, health, and wellbeing requirements in line with today’s ESG standards.

Essential ESG

In recent years, there’s been an increasing push for corporate entities to meet sustainability commitments and to be able to show their progress. ESG criteria, which detail the goals these companies must meet, are also being used by investors and the public to evaluate the impact that company has on society and the environment.

With a focus on the ‘E’ of ESG, Apollo aims to help its partners meet the right goals, and lower their own energy spend in a clearly documented and reportable way. Their approach includes evaluating carbon emissions from a company’s operations, reducing carbon tied to power use, and assessing the carbon impact of the enterprise’s supply chains.

They also work with clients to meet benchmarks for Energy Star® certification, identifying their buildings as top performers in energy efficiency and ESG accountability.

Tangible results

The results of this focus and dedication are certainly impressive, and one of the reasons Apollo are a top choice among NAI brokerages across the country. At time of writing, the company has improved some 52 million square feet of building space and saved nearly 7.5 million kilowatt-hours (kWh) of energy across their client base.

For a breakdown of their approach to ESG, have a look at their article here, or visit their commercial energy audits page for details on the Apollo approach to carbon-free CRE.

SOCIAL: With the demand for energy-efficient real estate on the rise, what tools or consultants are your go-to when planning energy-smart initiatives?

Past, Present and Future

Alec J. Pacella

We have experienced, either directly or indirectly, all sorts of changes over the last few years. We are paying more at the pump each time we fill up, we are waiting longer for certain products that may or may not show up and we probably know companies that are desperate to hire workers that simply cannot turn up.

As we continue through a summer of uncertainty, the questions are not just increasing but also getting tougher. Everyone wants answers but few know where to look. This month, I’m going to review some of the most common economic indicators. When viewed collectively, these can provide significant insight.

Gross domestic product (GDP)

This is a basic measure of overall production for the U.S. economy, including the value of all finished goods and services that were produced in a given time period. During times of expansion,
the GDP will increase. Real GDP will include the impact of inflation while nominal GDP considers the current market prices. This measure is produced by the Bureau of Economic Analysis, which is a division of the Department of Commerce. It is reported each quarter, generally released within four weeks of
the end of the quarter. Most will use the associated change, on a percentage basis, from one quarter to the next. For the most recent quarter as of press time, first quarter 2022, GDP decreased 1.6%.

Consumer price index (CPI)

This tracks the changes in prices for what is considered a market basket of
consumer goods and services. These include items such as energy, food, apparel, education, new vehicles and medical services, among others. As such, it is also the most common measure of inflation. CPI is tracked and produced by the Bureau of Labor Statistics and can be sorted by various base indexes and geography, but the most common is the All Urban Consumers (CPI-U). This index increased 1.0% in May 2022 and 8.6% over the trailing 12 months. The report is produced monthly and is generally available within two weeks after the end of the month.

U.S. unemployment rate This measures the total number of workers currently unemployed as a percentage of the total workforce. It is also tracked and produced by the Bureau of Labor Statistics and, similar to CPI, it can be broken down by job sector, such as Transportation & Warehouse, Construction and Manufacturing, as well as by geography. The unemployment rate for May 2022 was 3.6%. This index is produced monthly and generally available the Friday following the last day of the month.

Consumer spending
This tracks consumer spending on goods and services by U.S. residences. It is similar to GDP in a few ways. First, it will increase during times of expansion. Second, it illustrates the change, on a percentage basis, from a previous time period. And finally, it is produced by the Bureau of Economic
Analysis, who also produce GDP. This index was up 0.9% in April and 6.3% over the trailing 12 months. It is produced monthly, generally released by the end of the last weekday of the following month.

As we head into a summer of uncertainty, the questions are not just increasing but also getting
tougher. Everyone wants answers but few know where to look.

Home sales
This measures sales volume and prices of existing single-family homes in the U.S., including condos. It also breaks down the country by geographic regions. As with many of the indicators, a common metric is the percentage change from the prior period. This measure is tracked and produced by the National Association of Realtors (NAR), who publish it monthly. It is typically released on or about the 20th of the following month. For April 2022, home sales decreased 3.4% but the median sale price exceeded $400,000 for the first time ever, coming in at $407,600.

Housing starts
This report tracks housing starts, as well as building permits and housing completions, associated with privately owned, single-family homes. Like many of these indexes, the information can be separated on a regional basis and is produced each month. It is produced on a joint basis by the U.S. Census Bureau and the U.S. Department of Housing. For May 2022, there were 1,549,000 housing starts, which was a 14.4% decrease over the starts in April. It is typically released on or about the 15th of the following month.
Federal Reserve beige book
If anyone has their finger on the pulse of the U.S. economy, it’s the Federal Reserve – or, as discussed next, perhaps they are the pulse. Eight times a year, they publish a compilation of reports
collected from each of the 12 regional banks that make up the system. The result is a sampling of information; some is anecdotal, and some is statistical but all of it is insightful. The most recent
edition came out June 1, with future editions scheduled for July 13, September 7, October 19 and November 30.
Federal Reserve meeting
Few events have more impact on the U.S. economy than the regularly scheduled meeting of the Federal
Reserve Board. At these meetings, all sorts of decisions are made directly related to monetary policy, including the (in)famous discount or federal funds rate. The most recent meeting in June 2022 sent shockwaves worldwide when the Fed raised interest rates by 0.75%. This is the largest increase
since 1994. The Fed meets a total of eight times a year, with the remaining meetings scheduled for July 26 & 27, September 20 & 21, November 1 & 2 and December 13 & 14. The list above is by no means all inclusive, as there are all sorts of other meaningful and insightful indexes, reports and surveys available. The key is to focus in on a group and consistently track it every month. As the old saying goes – the past is history, and the future is a mystery. But indexes and reports can definitely help to make today a present.

Few events have more impact on the U.S. economy than the regularly scheduled meeting of the Federal
Reserve Board. At these meetings, all sorts of decisions are made directly related to monetary
policy, including the (in)famous discount or federal funds rate.

July 2022 Properties Magazine



What’s happening in… Hamilton, NZ?

New Zealand’s city of Hamilton – or Kirikiriroa in Maori – sits on the banks of the famous Waikato River which features heavily in its sights and site. In this city known for its beautiful greenery and walks, the most popular tourist attraction is the 54-hectare Hamilton Gardens.

With a population of just under 200,000 people, Hamilton is the fourth most populous city in the country. In 2020, it was named ‘most beautiful large city in New Zealand’. The wider Hamilton Urban Area includes Ngāruawāhia, Te Awamutu, and Cambridge, which collectively cover some 110 square kilometers of land. It is also the third fastest-growing urban area.

Leading industries and outputs

Hamilton’s economic heritage is as an agricultural services hub, particularly dairy cattle, and vegetable farming, but it also has thriving business services, construction, and health and community services. Additionally, R&D is an emerging sphere, given the city’s high tertiary educated population.

Residential market factors

New Zealand has typically seen high demand and low supply for residential housing in recent years which has kept prices elevated. There are, however, some movements in the markets, and new regulations around lending coming into play that could mean fewer residential buyers would qualify and those that do could be in for “bargains” in 2022 – according to a January 2022 report from Stuff.co.nz citing Mortgage Lab chief executive Rupert Gough.

Additionally, Realestate.co.nz recently reported new house listings in November 2021 were hitting their highest level in seven years, and Stuff.co.nz added that data from Infometric showing consent and permissions for new build projects were also much increased, compared year on year.

The latest CoreLogic Home Price Index (HPI) report shows that property values have declined in Hamilton, where housing values were down 0.9% in March.

Commercial property outlook

New property rating valuations from Hamilton City Council – released in April 2022 – put the city’s worth at NZ$ 71.4 billion.

Our Hamilton reports that the city’s “total property Capital Value (the total value of the land and any buildings on it) increased 53%, and Land Value 67% since 2018”. “On average,” the article continues, ‘Capital Values for commercial and industrial property have increased by 40% across the city”.

Insight from NAI Harcourts in the country suggests that industrial will remain “the darling of the three commercial property sectors”, but also that there is momentum in the Hamilton office market, which they characterized as coming from a “flight to quality” that was pushing local business in the central business districts to up their game.For more regional insight, contact NAI Global’s partners in Hamilton and surrounds.

Multifamily debt data reaches new record at end 2021

Recent data from the Mortgage Bankers Association’s (MBA) latest Commercial/Multifamily Mortgage Debt Outstanding report shows that the level of outstanding debt on commercial/multifamily mortgages – during the final three months of 2021 – was $287 billion (7.4 percent) higher than the level seen at the end of 2020.

Report frequency

The MBA releases this data on a quarterly basis and this provides a snapshot of debt and market health at the time. Released at the end of March 2022, this report focuses on the last quarter of 2021 – and compares figures to the preceding quarter and the corresponding quarter of the previous year.

For the purposes of this research, the four major investor groups considered include: “bank and thrift; commercial mortgage-backed securities (CMBS), collateralized debt obligation (CDO) and other asset-backed securities (ABS) issues; federal agency and government-sponsored enterprise (GSE) portfolios and mortgage-backed securities (MBS); and life insurance companies”.

Their data shows that “total mortgage debt outstanding rose by 2.9 percent ($116.0 billion) in fourth-quarter 2021” and specifically that “multifamily mortgage debt grew by $42.1 billion (2.4 percent) to $1.81 trillion during the fourth quarter, and by $121.9 billion (7.2 percent) for the entire year”.

Understanding the data

MBA’s Vice President of Commercial Real Estate Research Jamie Woodwell commented: “Strong borrowing and lending backed by commercial and multifamily properties drove the level of mortgage debt outstanding to a new high at the end of 2021.”

This was evident in every major capital source, he said, adding: “The 7.4 percent annual increase in outstanding debt compares to a 19.5 percent increase in underlying property values.”  

As Yield Pro points out in their analysis, government-sponsored enterprises (GSE) “continued to have the largest share of multifamily mortgages outstanding”.

In related material, MBA confirmed that commercial and multifamily mortgage delinquencies in the US also declined in Q4 2021, characterizing the rates as “down or flat for every major investor group”.