by Carlos Febres-Mazzei, Senior Vice President/Partner with CBRE/NE’s Debt & Structured Finance team
Just a year ago, I submitted an article to the Banker & Tradesman with some ideas as to how the commercial real estate market would play out over the course of 2013. At the time, Mayor Thomas Menino had yet to announce his retirement, the 10-year Treasury wiggled around 1.8%, and Boston was one of a select few markets to be considered a safe bet by investors. To be sure, 2013 was a year of change for us and the rest of the country.
Some of the focal points in last year’s outlook played themselves out in an interesting way; let’s take a look:
Theme 1: Interest rates will creep up, but not enough to affect asset pricing or transaction volume.
TRUE. We actually saw the 10-year Treasury teeter between 1.8 and 2.0%, before dropping to 1.6% in May. After some comments by the Fed chairman about an imminent tapering program, fixed income markets freaked out, and the 10-year rate widened by 100 basis points in six weeks. However, the increase had little-to-no impact on core asset pricing. Why? In part, it was due to borrowers switching to shorter-term deals with lower index rates in order to maintain the same yields. For core product, there was simply too much equity capital chasing high-quality deals to affect pricing, and investors were prepared to accept lower returns versus losing a deal.
Theme 2: Maturing loans will be refinanced with ample debt capital and an increase in CMBS.
TRUE. Over $13 billion of CMBS matured in 2013 nationwide, in addition to maturities from banks and other lenders. CMBS lenders originated about $86 billion in the U.S. last year, an increase of $38 billion from 2012, which was enough to refinance 2013 maturities three times over.
Theme 3: Development in the office and hotel sectors will help to balance the wave of apartment projects under construction.
TRUE (sort of). New development of office buildings finally began in 2013, following a series of mega-deals in the office sector, where some major old-line tenants signed large build-to-suit leases in Boston (see State Street, PWC, Goodwin Procter) and in Cambridge (Pfizer, Millennium). Boston Properties looks to be ready to start on Boylston Street as well. We saw new hotels break ground with CV Properties’ twin concepts in the Seaport, and more projects to come in Cambridge, the Back Bay and other neighborhoods. Three of the four development firms mentioned in last year’s article have broken ground on various deals outside the apartment sector.
For the complete article, click here to be directed to the Banker & Tradesman website.