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News release


Institutional Lenders to Place Record Capital into Commercial Real Estate in 2014

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:

  • A substantial weight of capital is sitting on the sidelines looking for product; and a broad range of investors have announced intentions to make fresh commitments in 2014
  • More commercial property product is expected to come onto the market from harvest sellers taking advantage of the current market cycle; but interested buyers will still outweigh the available sellers
  • Investment activity in secondary markets and assets will continue to grow as investors now are more comfortable with the risk at the property market level. These transactions will be supported by better access to financing across the U.S. lending spectrum. For more detail on regional liquidity, check out JLL’s Debt Dynamics e-book that details regional lending sensitivities.

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

  • Multifamily: The potential winding down of the GSEs did not have an impact on 2013’s record breaking sales volumes. The agencies continued to dominate multifamily lending activity and likely maintained close to their 2012 market share of 40.0 percent, offering as much as 80.0 percent leverage, with tier-3 spreads averaging 225 basis points in the fourth quarter. While the agencies have maintained a dominant foothold in higher leveraged transactions, Life Insurance Companies’ floating rate programs in particular have been very attractive to borrowers. JLL expects multifamily lending to remain strong as economic expansion fuels household formation and helps mitigate the threat of oversupply.

  • Retail: There is plenty of debt capital at spreads in the 150 to 200 bps over swaps for 10-year fixed rate deals.  With the recent pullback in treasuries, trophy assets and those with long-term credit in rent rolls may be able to achieve financing in the low to mid-4 percent range for 10 years.  For smaller deals and those in transition, debt funds are filling a nice void in the debt markets with floating rate pricing in the 6 percent range. The net lease market is pricing incredibly strong from life companies with cap rates of sub-5 percent and debt yields at 7 percent for 15 to 20 year full amortized, investment-grade deals
  • Hotels: Hospitality lending contributed to a disproportionate share of the lending volume increase as it went from 15.7 percent of all CMBS originations in 2012 to 23.0 percent of all CMBS origination in 2013. Hospitality origination increased from $7.6 billion in 2012 to $20.3 billion in 2013, a 167.0 percent increase, which included floating and fixed rate loans executed in either pooled conduit transactions or stand-alone securitizations. This activity signaled the important re-emergence of the floating rate CMBS market, which had been largely muted since the credit crisis.
  • Industrial: Industrial markets across the U.S. have been quietly recovering for more than two years, demonstrated by 15 consecutive quarters of positive net absorption.  Widespread demand across size segments has resulted in the U.S. vacancy rate falling to 8 percent inching closer to its prior cyclical low of 7.5 percent. Life companies will continue to aggressively pursue high-quality industrial offerings, especially portfolio opportunities where a large amount of capital can be deployed quickly.  With increasing liquidity in the CMBS market, life companies have acknowledged the competitive landscape, and will be more active in the Class B space (both single assets and portfolios) and in secondary and some tertiary markets.  Accordingly, banks will be looking to replace loans that are rolling earlier than anticipated due to both the active investment sales market and attractive permanent debt market.  Five to ten-year fixed financing can expect pricing in the low 3’s to high 4’s depending on term and advance rate.

Investment Sale Surge
The 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.

Don’t stop here. Connect to all of JLL’s market resources:

  • Interested in hearing more about the global capital markets? Please attend JLL’s Global Market Perspective Webinar to learn valuable insights directly from our economist and property experts Wednesday, Feb. 5 from 10 to 11 EST. Register now:  
  • For more news, videos and research resources on Jones Lang LaSalle, please check out the firm’s INVESTOR e-magazine

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