What the Big Money Thinks on the Economy

This article was contributed by Brian Peart of Commercial Capital Limited, who our firm highly recommends. 

Last month, Brian Peart took part in the Crittenden Real Estate Finance Conference in Miami, which is attended by representatives, VP’s and partners in firms both public and private that represent over a trillion—yes, a trillion, dollars worth of lending capacity. Collectively, these firms control many trillions in real estate and cash.  As Mr. Peart states below, the conference was full of “big money folk” who all felt good about the economy and the future of it. 

The general sense I got from the Crittenden Real Estate Finance Conference was interesting.

Almost across the board- none of them felt like a disruption in the economy would happen any time soon.  Most felt confident that we had at least 3-5 years of continued expansion.  They based their opinions on the sheer money that is available to lend, and core things like rent growth and momentum.  Collectively, there has been more money raised and sitting poised to deploy into deals than any of them can remember.  They all warned that anything could happen.  They acknowledged that there are global concerns that could trip everything up, but barring something like that…they felt very good about the economy over the next 3-5 years.  I must be honest, that is a longer time span than I, myself thought.  So this was encouraging.  Some other interesting nuggets from the conference….

– Despite having more money available to deploy into deals, most lenders are not significantly changing their underwriting criteria.  They may be a little more aggressive than they were a year ago, but they have not thrown caution to the wind.  Underwriting is no where close to the crazy that was happening in 2006-2007 that helped facilitate the 2008 debacle.  Banks are actually more regulated now and hence…just as tight on their underwriting as ever despite having plenty of cash available to lend.  This was another reason that the big boys felt good about continued growth…..

– The major metro markets will continue to get the lion’s share of the money as two trends are converging to make the major markets attractive-seniors heading back to the cities and the under 30 crowd wanting to live and work in the urban centers.  The most aggressive rates, money and construction funds will be available in the major metro markets for the near future.

– However, big funds, needing to deploy capital, will look to move selectively into secondary and tertiary markets to try to find yield.  Good projects in these markets will be able to still attract capital…especially if the market is in a growth corridor.

– Stunningly, multi-family properties are 52% above the 2007 peak in major metros and office is 42% above the prior peak.  Meanwhile, suburban non-major metros are still 15% below the peak and many tertiary markets are still far below the highs.  Offices in suburban markets are struggling as there is very little rent growth in suburban office markets.

So what do we make of all this?  The big money is flowing into commercial real estate funds, banks are healthy and have money to lend, the Fed just kept rates low yet again, and the economy continues to recover.  These are all positives for continued strength in the commercial market.  Government regulation of banks will continue and actually increase with new legislation continuing to be phased in.  This will lead to a lot of solid deals still getting denied as the big banks and local banks still deny more loans than they approve.  It is here where my firm adds the greatest value.  Over 80% of the loans that I close got denied somewhere first and I was able to get them conventional good rates. If you or anyone you know is looking to purchase or refinance their existing commercial property or is looking to do a business expansion or start-up, please feel free to contact me at commercialmoney411@gmail.com

Brian Peart