Commercial Investment Real Estate

JAN-FEB 2018

Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.

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CCIM.COM January | February 2018 11 markets. Without changes to the current regulatory environ- ment, traditional banks will continue to limit their exposure to commercial real estate. Traditional banks still can be expected to provide balance- sheet loans on a recourse basis to their customers, but they ulti- mately will adopt a leaner, less back-office-intensive business model. Similarly, banks will continue to play a role in CMBS and the overall securitized market, but their business will remain relatively minor in comparison to the broader capital needs of the market. As a result, private debt and private equity will see outsized growth of capital for deployment. More equity exists in today's deals than during the last cycle, and the markets are pricing the risk correctly for potential future movements in both short-term and longer-term interest rates. As stated by lenders, leverages and coverage ratios seem to be holding. However, the devil is in the details of how the lenders are underwriting income and expense growth, as well as residual cap rates. It is evident that the more capital that exists in any space, the more underwriting standards will be compromised to compete for good deals and borrowers. The rise of established real estate developers acting as lenders through debt investments is part of this evolution. This is not a veiled attempt at a loan-to-own strategy, but rather a way for developers to satisfy too much demand from interested partners compared to the number of viable development deals available. It also may show developers' desire to expand to new areas along the risk curve. In any case, this is preferable to them trying to force too many new deals or ever-risky transactions simply to remain productive. As investors navigate the first quarter of 2018, they should call on the expertise of fund managers who are closely monitor- ing where private equity funds are flowing in U.S. and global real estate. Most important, investors need to determine where private equity will flow next. For example, multifamily currently is the favorite asset class, followed by industrial real estate. Investment in the industrial market is logical, as the uptick in online retailers is driving a repurposing of facilities and development of new warehouses and distribution centers. While private equity interest in commercial real estate invest- ing continues to build, also look for new opportunities to arise as asset management firms become full service and innovative loan structures are introduced. Brian Ward is CEO of Trimont Real Estate Advisors. Members can use the CCIM booth to meet with clients at the world's largest retail real estate convention. Save the Date: May 21-23, 2018 Las Vegas Convention Center Booth #C2020 Join CCIM Institute and STDB at

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