It has become a cliche to say the economy is showing signs of life — but, then, there it is. The economy IS showing signs of life — as well as the commercial real estate industry, which all but had its final rites time last year.
To be sure, there are several challenges including the yet-to-be-resolved question of where billions of dollars of commercial property debt will find refinancing, the record high CMBS default rates and several legislative initiatives that are worrying the industry.
But never mind those for the moment. Instead consider what has happened in just the last several days:
- Citigroup is bringing a $222M RMBS to market — a private-label RMBS — according to the Financial Times. The bonds are expected to be AAA-rated, backed by 255 residential loans originated by CitiMortgage.
- REITs — at least the publicly traded ones and even many unlisted REITs — are going gangbusters. Last year they raised a record amount of equity, primarily used to shore up balance sheets. This year they are on track to match that or more. Better yet, at least some of this war chest is expected to be used to make acquisitions. This week alone saw five REIT IPOs or stock offerings including Kilroy Realty, Chatham Lodging Trust and Macerich Co. which raised an eye-popping $1.23 billion.
- The reviving CMBS market is pushing out more transactions. Glimcher Realty Trust CEO Michael Gilmcher, for example, told USA Today that the company just acquired $100 million in loans will be sold into the CMBS market in order to refinance loans for shopping centers in Tennessee and Ohio.
- Europe’s structured finance market is getting back to its feet as well too. Property investment fund Vesteda launched a $471 million CMBS this week, the first in Europe for almost a year.
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A number of the people I have been in touch with feel like they are seeing much more activity in the last few weeks. One went so far as to call the bidding on one property a “frenzy” While I realize that not everyone is enjoying the ride up from the bottom, a lot of equity is out there chasing well located class A properties. My thought is that there is a lot more cash available than properties available, which should make things very interesting once more assets come to market.
In the “smaller transaction” world ($1-$3M), there is certainly increased activity. We have seen it since around mid-February. Deals that we are pricing right… even if they are not Class A are getting traction in the market.