2018 Capital Markets Update
Update prepared by John Nicola, VP with Grandbridge Real Estate Capital LLC
As the Mortgage Banker Association’s 2018 CREF/Multifamily convention in San Diego came to a close on February 14, 2018 many important topics were covered. First and foremost, 2017 will be remembered as a strong year for commercial and multifamily originations. According to estimates from the MBA’s Quarterly Survey, commercial and multifamily originations were up 15 percent for the full year 2017 over 2016. Jamie Woodwell, the MBA’s Vice President of Commercial Real Estate Research concluded that, “based on these preliminary numbers, 2017 was a record year for borrowing and lending backed by commercial real estate properties.”
Secondly, originations for commercial and multifamily properties in 2018 is expected to decline slightly in 2018 partially due to the fact that there are fewer 10 year duration maturing loans and construction activity levels are anticipated to slow in both the multifamily and hospitality asset sectors.
Third, with the Federal Reserve expected to raise rates three or potentially four times in 2018, the predictability of bond market movements is uncertain to say the least. At the January Fed meeting, Chairwomen Janet Yellen’s last meeting, she and her colleagues voted to leave the benchmark federal funds rate unchanged. This set the tone for incoming Chairman, Jerome Powell’s first meeting in March, where the Fed has signaled that it is on track for a rate hike. We have already witnessed a significant movement in the 10 year Treasury Note, a 40 plus basis point increase since the start of 2018 (2.48% as of January 1, 2018 and 2.90% as of the morning of February 20, 2018).
Predictions for 2018:
- Inflationary pressures will continue and the Fed will have no choice but to increase rates a minimum of 3 times in 2018
- Although the bond market has supposedly already “priced-in” 3 to 4 rate hikes for this year, absent a major geopolitical event, I expect the 10 year Treasury Note to end 2018 at or above 3.50%, a level not seen since September of 2009
- Compression of spreads on commercial and multifamily properties will pick up steam in the 3rd & 4th Quarters of this year as commercial banks, CMBS lenders, life insurance companies, Freddie Mac and Fannie Mae all try to “win” business to match allocations from 2017
*Grandbridge Real Estate Capital provides permanent, interim and construction loans for commercial and multifamily properties using our broad capital provider base comprised of insurance companies, Fannie Mae, Freddie Mac, CMBS lenders, proprietary lending platform, BB&T Real Estate Funding, as well as BB&T Capital Markets.
Feel free to reach out to John for more information about the capital markets or his services at 239-676-3404 or by email at Jnicola@grandbridge.com. And of course for all your real estate needs feel free to contact Dougall.
Dougall McCorkle
Premier Commercial Inc. – lic. Real estate brokers
239-860-3368
Dougall@premiermail.net
