IMN Winter Real Estate Forum: Optimistic 2017 Outlook for Real Estate
GSP joined hundreds of industry professionals at IMN’s 14th Annual Winter Forum on Real Estate Opportunity & Private Fund Investing in Southern California. The outlook for real estate investments and capital markets was optimistic. Many predicted that the absence of the denominator effect and turmoil in the CMBS market, both of which plagued the market early last year, coupled with the Trump effect (lower taxes and loosening regulation) and healthy levels of consumer confidence would lead to an inflationary environment in 2017. Concerns about rising interest rates were allayed by inflationary policies, rising rents and wide spreads between cap rates and interest rates, buffering asset repricing from the two to three 25 basis point interest rate hikes expected in 2017. Furthermore, the two forces that lead to peak pricing during the Great Recessions—TICs and high leverage fueled by lax underwriting—are absent from the market, and large funds also have significantly more dry powder today ($239BN) than pre-recession levels ($130BN), leaving them defensively positioned.

On the capital markets front, lender appetite remains robust with agencies, life companies and debt funds expected to match or exceed 2016 production levels. However, new regulation affecting the banking and CMBS industries, High Volatility Commercial Real Estate (“HVCRE”) regulation for banks and Risk Retention regulation for CMBS conduits, and lender concerns over development at this stage in the cycle, have many predicting greater focus on location, sponsorship and property type. This means that banks and CMBS lenders will place a premium on those projects that are strong, well presented and compliant with new regulation. Zack Streit.