By Pat Jackson, President and CEO, Sabal Capital Partners
Sabal’s position as a nationwide commercial real estate lender allows us the benefit of seeing a wide range of deals and markets, ultimately giving us a macro-level view of trends occurring across the country. As we move deeper into the second half of 2019, below are three trends the Sabal team expects to continue impacting the commercial real estate industry over the coming months.
1) Heightened Multifamily Lending in Secondary and Tertiary Markets
More and more, we are seeing multifamily activity growing in secondary and tertiary markets. There is a shortage of workforce housing across the country, and we’re seeing that people living in markets like Charleston struggle just as much as those trying to find an affordable place to live in larger cities like Chicago. Financing existing product in these markets is key to keeping workforce housing available – and the current marketplace dynamics in these regions, including lower competition, higher cap rates and the opportunity for strong year-over-year rent growth, create an excellent investment opportunity for multifamily owners and buyers. Obviously, all deals should be evaluated for risk, as with any real estate transaction.
2) Greater Acceptance of Agency Product in the Small Balance Marketplace
Agency products like Freddie Mac’s Optigo Small Balance Loans Program and Fannie Mae’s Small Loan program are becoming increasingly accepted and popular options for financing multifamily assets. For example, in 2018 Freddie Mac’s Small Balance Loan program financed 2,771 small balance loans, a year-over-year increase of a little more than 3%. With $7.4 billion in funding, this represented 10% of Freddie Mac’s Multifamily volume. In 2017, Fannie Mae reported $2.3 billion in funding in its Small Loans program, a 21% increase from the year prior. While Fannie’s numbers remained relatively flat in 2018, the continuance of the program’s strong performance year-over-year is indicative of the marketplace’s need for this type of financing.
At Sabal, we’ve seen broker awareness and desire for these programs’ financing increase significantly, as well. Annually, our Freddie Mac pipeline continues to grow significantly, and we’ve seen a strong start to our Fannie Mae program, which was approved in early 2019.
3) Increasing Diversity in the CRE Workforce
Over the course of the past decade, there has been a marked increase in the number of women in the CRE workforce. According to CREW Network’s “2015 Benchmark Study Report: Women in Commercial Real Estate,” 9% of c-suite positions in CRE are held by women. Additionally, asset management and development have seen increases in the number of women working in each field. This change is welcomed and much needed to keep the talent pipeline fresh.
Despite this progress, there is still much room for change in the workforce. A study released by CREW Network found the percentage of women in brokerage and finance declined between 2006 and 2015, from 39% to 29% and from 44% to 42%, respectively.
While there has been significant focus on diversity in the commercial real estate space, it’s imperative that the industry continue to welcome and grow in diversity. Commercial real estate assets – whether apartments, retail, office, industrial or other – are utilized by a wide range of people. It’s key that the industry designing, developing, funding and investing in these assets reflect that same level of diversity.
Heightened multifamily activity in secondary and tertiary markets, greater acceptance of agency product in the small balance marketplace and a push for increased diversity in the industry are all trends that we will continue to watch this year and beyond.