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JLL’s expects commercial lenders to boost funding levels to new –post recession high
CHICAGO, Feb. 3, 2014 – It is hard to believe that just seven short years ago, an economic collapse sent the U.S. debt markets into a tailspin, and the commercial real estate industry was left holding near valueless paper and underwater investments across the nation. Now, commercial property investors and lenders have a new attitude, and it seems they are just as confident as the peak market days. Industry experts attending the Mortgage Banker’s Associations’ (MBA) Commercial Real Estate Finance (CREF)/Multifamily Housing Convention & Expo in Orlando this week caution, there are fundamental differences in today’s optimistic outlook.
“In the last three years, commercial property lending has continued to gain momentum and it is fundamentally strong, while still maintaining disciplined underwriting standards. The fundamentals of the real estate markets also are improving via the growth in the housing markets, construction, industrial production, and the further strengthening of the consumer psyche. The convergence of these factors leads us to an optimistic 2014 forecast for the real estate lending markets,” said Tom Fish, Executive Managing Director, Jones Lang LaSalle.
“Banks now trust the improved value of real estate again, which results in increased lending competition that should keep spreads tight and fuel strong performance up the risk curve to broader geographies and asset types this year,” added Tom Melody, Executive Managing Director and co-head of Jones Lang LaSalle’s Real Estate Investment Banking team.
Jones Lang LaSalle (JLL) points to several dynamics pushing debt liquidity into high performance this year:
Cost of Capital While money isn’t exactly flying from the sky, it is flooding into real estate in record-numbers from the conduits, according to JLL’s Cost of Capital report issued today at the MBA conference.
U.S. CMBS issuance peaked in 2007 at
$230 billion. In 2013, CMBS issuance reached a post-recession high with
$86.1 billion of new issuance, up 78.0 percent from its $48.4 billion
level in 2012. Highly-rated CMBS spreads are also low from a historical
perspective and remain stable, tightening by 20 bps since the start of
the fourth quarter 2013, and into 2014.
“We’re seeing a broad expansion from all commercial lenders, but we expect CMBS to again be one of the big movers in 2014. Credit spreads have tightened over last few months and that level of stability helps steady pricing and rally CMBS activity which brings added efficiencies to the market,” added Mike Melody, Executive Managing Director and co-head of JLL’s banking business. Melody says CMBS issuance that could well exceed US$100 billion this year, and he expects lenders across the board boost funding to post-recession highs this year.
Property Sector Financing
Investment Sale SurgeThe abundance of equity capital and a strong and growing debt market will create an attractive environment for acquisitions and financings throughout 2014.
“We forecast a 20 percent rise in transaction volume from $200 to $295 billion across the Americas for the year. This would mark the third-highest level of transactions on record, following 2007 and 2006 respectively,” added Jay Koster, JLL’s Americas Capital Markets President.
Deals already in the pipeline also point to further growth in global investment activity during 2014. JLL’s initial forecasts indicate volumes of US$650 billion, a15 percent uplift on 2013 levels and representing the fifth consecutive year of growth.
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About Jones Lang LaSalle Jones Lang LaSalle (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual fee revenue of $4.0 billion, Jones Lang LaSalle operates in 70 countries from more than 1,000 locations worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services to a property portfolio of 3.0 billion square feet. Its investment management business, LaSalle Investment Management, has $47.6 billion of real estate assets under management. For further information, visit www.jll.com.
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