Berkadia Study Shows Anticipated Market Momentum Across Commercial Real Estate in 2018, Driven by Specialty Sectors and Regional Economic Growth

Inaugural Berkadia Powerhouse Poll shows investment opportunity in Seniors Housing sector and Southern regions; lending will be sourced from GSEs

NEW YORK – January 19, 2017 – Mortgage banking and investment sales experts at Berkadia anticipate that the momentum the commercial real estate industry saw in 2017 will continue in 2018, according to the firm’s inaugural Powerhouse Poll. The proprietary poll, conducted during the fourth quarter of 2017, collected insights from nearly 150 Berkadia investment sales brokers and mortgage bankers across 60 offices to assess 2018 opportunities in the multifamily space.

Nearly three-quarters (74%) of mortgage bankers expect to see no downturn in the multifamily lending space this year, saying that deal volume will either increase or remain the same from 2017. Further, 81 percent of mortgage bankers say the same is true for deal value. Expectations are high on the investment sales side as well, with 72 percent of brokers saying they expect the number of transactions to either increase or stay the same over the course of the year. Eighty-one percent of brokers say the same is true for deal value.

This rate of activity on both the mortgage banking and investment sales side is projected to be largely driven by several specific sectors and regions. Nearly all (90%) of mortgage bankers said investors seeking financing will turn to Government-Sponsored Enterprises (GSEs) as their lender of choice in 2018.

“We anticipate the new tax law and employment growth will have the most impact on the market in the coming year,” said Ernie Katai, Executive Vice President, Head of Production at Berkadia. “These factors will be even more important than anticipated hikes on interest rates. Those increases have largely been telegraphed by the Fed, and so investors have forecasted this in their plans for the year.”

Manifest Destiny

Investing and lending alike are expected to flourish in the Southeast, Southwest and West in 2018, with 84% of all survey respondents identifying these three regions as where they anticipate the most deal activity. Mortgage bankers are particularly bullish on the Southeast as a hotbed for activity, with over a third (37%) saying that is where they expect to see the most deals take place.

“Population influx, continued job growth and significant development stabilization will make the Southeast a destination for commercial real estate growth and investor appetite in the coming months,” said Katai. “Younger generations who are looking to take advantage of low costs of living and increased opportunity to build their careers are turning to the Southeast to serve these needs. As this renter activity spikes, investment opportunities will follow and investors will seek financing in the growing region.”

Opportunity Knocks on Specialty Sectors’ Doors

Forty percent of investment sales brokers expect that multifamily assets will see increased activity in 2018. However, there will be additional investing opportunities across other specialty sectors. Seniors housing, in particular, is expected to be driven by the aging Baby Boomer population—nearly four in 10 investment sales brokers (38%) said that seniors housing will see more activity this year than last. Another area that will likely see a boon is affordable housing, with 34 percent of investment sales brokers expecting an uptick in activity in the sector. Outside of housing, Berkadia brokers anticipate that investors will find more opportunities to invest in industrial real estate—38% said this sector holds more opportunity this year when compared to years past.

“As the American population continues to age, we’re seeing a heightened demand for independent and assisted living and skilled nursing facilities throughout the country,” said Katai. “Additional sectors are expected to grow in response to the continued growth of ecommerce and the need for modern distribution space, which will bolster the industrial market.”

Working with GSEs

According to two-thirds (67%) of Berkadia brokers, domestic private investors will drive the most investment activity in 2018. As investors of all types consider financing their purchases this year, nearly all of mortgage bankers (90%) said that GSE’s will see the most activity this year.

“Understanding how to work with GSEs to source financing will be critical to success this year, as we anticipate the majority of activity will come from these funding sources,” said Katai. “Mortgage bankers should be prepared to deal with a rising interest rate environment.”

About the Powerhouse Poll
Data was collected in an online survey conducted internally by Berkadia through SurveyMonkey from September 28th-October 27th, 2017. The sample was based among Berkadia’s 60 offices throughout the U.S., consisting of 54 investment sales brokers and 89 mortgage bankers, totaling 143 overall respondents.

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