Panelists explored real estate investment and finance in the current economic climate
On September 14th, Sabal Capital Partners and Mansion Global hosted Real Estate as an Investment in This Current Economic Climate, a live virtual event for commercial real estate owners, investors and brokers. Expert speakers included Ann Atkinson (managing director, small balance loan & market real estate production manager for Sabal Capital Partners, LLC), Jason Scott (managing director, head of conventional loan production for Regions Bank), and Danielle Hale (chief economist with Realtor.com). Lucy Cohen Blatter (editorial director, custom content for Barron’s Group) led the panelists in a robust discussion of the state of multifamily and commercial real estate investment and finance, covering timely topics and challenges including rising inflation and interest rates, the country’s housing affordability crisis, and the availability of finance for today’s deals.
Ann Atkinson led the discussion about the country’s housing affordability crisis, noting that construction of new units continues to target higher income renters, leaving lower income Americans severely underserved. Pointing to a positive, Atkinson explained the continued commitment of agencies Fannie Mae and Freddie Mac to provide liquidity in the marketplace for the finance of affordable rental housing units. She cited the meaningful growth of their goal to finance 315,000 affordable units in 2021 to 415,000 units this year. Both agencies offer several loan products specifically for borrowers seeking debt for affordable multifamily communities. Those options may be accessed through official agency lender partners including Sabal and Regions Bank.
Ann Atkinson also shared pertinent commercial real estate lending statistics with the approximately 800 registered event attendees. She noted that, per the Mortgage Bankers Association (MBA), commercial and multifamily mortgage loan originations increased 19% year-over-year in the 2nd quarter of 2022 as compared to the same period in 2021, setting another quarterly record. Breaking down increases by asset class during this period, retail lending increased 108%, hotel lending increased by 37%, multifamily lending increased 24%, and industrial lending increased 3%. Decreases in lending occurred in both office and healthcare. MBA is forecasting a slowdown in borrowing and lending during the remainder of the year, however points to improvements in fundamentals and values in recent years that are providing significant support to properties with outstanding loans, as well as continued financing opportunities for properties whose cash flow can support debt.
Jason Scott educated viewers on what he believes to be the biggest macro-level issue impacting both buyers and sellers of commercial real estate today – valuations. Scott spoke in depth about the drastic increase in interest rates over the past several months and their impact on cap rates (which are the percentage resulting from net operating income divided by purchase price). Lower cap rates equate to higher valuations and vice versa, however Scott explained that today’s spiking interest rates have led to negative leverage, or cap rates which are undesirably lower than interest rates. The bottom line is that buyers today cannot pay the same price that they could just a few months ago for a real estate asset. As Scott pointed out, until the market and pricing adjust accordingly, we should all expect multifamily and commercial property sales to slowdown.
Economist Danielle Hale addressed interest rates also, making the point that cost of capital and other trends happening in commercial real estate (as a result of rising rates), are also happening across other asset class investments, including for-sale housing. She mentioned higher interest rates are, in part, a reflection of economic growth opportunities and, in part, inflation premium. She believes we are not yet done experiencing Fed interest rate hikes and that the U.S. economy will continue to adjust likely into early 2023.
The panelists all agreed that rent growth has been significant across multifamily, but that interest rate hikes and other factors may begin to moderate that growth. Hale noted that single digit rental rate growth is more likely to occur than the double-digit growth that we have been seeing. All panelists believe multifamily is an asset class that weathers storms and that its current fundamentals remain very strong. Atkinson pointed out now is a good time to lock in long-term fixed rate financing.
To access the full recording of the recent roundtable, which includes in-depth Q&A between the audience and panelists, visit https://bit.ly/3RBT1v9