Mark Halloran, Senior Vice President with GRS Group, an NV5 Company
The Commercial Real Estate Finance Council (CREFC) conference occurred last month and saw record breaking attendance as it kicked off 2023. The event was held in Miami, Florida and presented the attendees with pleasant weather which brought out the sunny side of attendees, as an air of cautious optimism was evident at conference sessions, networking breaks and evening receptions.
The panel participants and moderators reminded attendees that commercial real estate (CRE) is cyclical, corrections inevitable, and even healthy for the industry. The days of near-zero interest rates are gone (for now). Several speakers pointed out that the downturn was not a self-inflicted wound, but rather a wound inflicted on the industry by artificially low rates followed by dramatic rate increases to stem inflation.
The Commercial Mortgage Backed Securities (CMBS) sector will continue to face the obstacles seen in the second half of 2022. A fully healthy CMBS sector is still restrained by “price discovery” issues and widening bid-ask gaps brought on by recurring interest rate hikes. There are concerns about the office sector and non-grocery anchored retail centers; this is not unique to securitized lending. The fundamentals of CMBS loans made during the Great Recession recovery appear to be well underwritten with a greater portion of sponsorship equity in deals, versus prior cycles.
The myriad challenges for CMBS lending are clear. Whether it will it be a 2Q or 2H recovery for the sector, is still in the cards. As skating legend Tony Hawk stated in his keynote address on Day 2, you have to believe in yourself, stay focused, chart your own course and always innovate. This industry has always been adept at that.