Jeff Coyne, Senior Vice President with GRS Group, an NV5 Company, attended the Mortgage Bankers Association’s Commercial/Multifamily Finance Servicing and Technology Conference in Chicago. The annual conference brings together some of the biggest firms in the commercial real estate servicing industry to discuss relevant issues in 2023 and beyond.
The conference is a key event in GRS Group Commercial Real Estate (CRE) industry due diligence calendar. The Conference presents an opportunity for industry leaders, innovators, and finance professionals to discuss emerging trends in CRE. Key take aways from the conference were:
- More scrutiny than in the past – With markets down globally and with lenders having exposure to troubled assets, many eyes are on financial statements, due diligence reporting and more scrutiny around the borrower’s plan is to operate, and maintain, the asset.
- Costs to operate are increasing, but can tenants pay more and remain? – Servicer challenges include reporting higher expenses from borrowers (i.e., inflation in utilities, insurance premiums, etc.) and addressing deferred maintenance items during inspections in the post-COVID years. Insurance premiums are rising to an all-time high. Some markets are seeing insurance premium increases of 75-100% over previous years.
- Billions of dollars of loans coming due – High maturity rates in the next two years will be of specific concern. Other maturity risks are now considered as well – mainly higher interest rates, and lower appraised values which can affect the loan value to price. If a property LOST value, and interest rates are now higher, many borrowers may need to pay off significant portions of the loan to even qualify to refinance it.
- All eyes on office assets and CMBS – Watch for increasing office Commercial mortgage-backed securities (CMBS) loans going to special servicers and possibly foreclosure. Many “trophy” office properties are now owned by the lenders as the borrowers simply “mailed the keys back”. This is because the cost to own and operate does not appear to be feasible for the future of the loan.
- Data needed, good data, and fast! – Lenders want more data and timely information. This will put pressure on servicers and require a strong servicer-borrower relationship along with strong relationships with vendors, like GRS Group.
- Mother Nature’s impact cannot be understated – As catastrophic natural disasters have increased, losses are outpacing historical numbers. The old playbook does not work any longer. In hurricane-prone areas, borrowers are having increased difficulty obtaining required named storm and wind insurance. In California, wildfire exclusions are becoming increasingly common. Tornados are gaining in both strength and frequency. A major earthquake in the West could be catastrophic to the CRE industry depending on when, and where, it occurs.
All in all, despite the concerns above, the tenor of the conference was upbeat, and people look forward to both the challenges and opportunities ahead for CRE.