Archives for February 2020

NAR remains committed to fighting for fair housing and equal opportunity for all with the new Fair Housing Action Plan. Take a look back at 2019’s achievements, and learn about Volunteer Works, a year-long mentorship program for REALTORS® who are expanding their community service programs.
By: NAR
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As investors look for defensive assets, multifamily could garner a lot of attention.

As this cycle winds down, Omar Eltorai, a CRE market analyst at Reonomy, has concerns about several commercial real estate sectors.
“If 2020 does bring uncertainty, which is what I’m expecting, it will be in the latter half of the year, and it could mean that hospitality and lodging would likely have a tougher time,” Eltorai says.
Eltorai’s rationale is that once the economy turns, consumers pull back on discretionary spending. “I do think that hospitality and lodging react quicker to uncertainty,” he says. “It’s far easier for me to cancel a hotel room and to cancel a trip if my purse strings are getting a little bit tight.” While observers are quick to pile on retail, Eltorai still sees some strong operators that should weather any economic turbulence ahead.
“There are some premium mall operators out there that have proven that there are great returns to be made in top-quality retail sales and top-quality malls,” he says. “Maybe retail has been struggling, but if you’re painting with a really broad brush, there are certainly some operators that have demonstrated it is still a worthwhile venture.”
Industrial has been very strong recently, but Eltorai thinks economic uncertainties could slow that sector’s growth. He predicts that apartments, on the other hand, could benefit from turbulence if the economy sputters. “People cut your spending, but shelter is pretty important,” he says.
Because of the need for housing, Eltorai says multifamily has been resilient. “The longer there is uncertainty in the market and investors are still looking to deploy capital into real estate investments, I think that multifamily comes out looking better than ever,” he says. “With uncertainty present, we’re going to continue to see investment focusing on what I would consider generational trends, such as Millennials moving to the west or south.”
Even though Eltorai likes apartments, there are concerns with the sector. If something were to happen to Fannie Mae and Freddie Mac, liquidity could be hampered. This week The Federal Housing Finance Agency (FHFA) hired investment bank Houlihan Lokey to recapitalize the GSEs. Still, Fannie and Freddie’s increased lending caps bode well for multifamily in the near term.
Compressed apartment cap rates in tertiary and secondary markets are also a concern to some investors. “Income earning properties are becoming a far more mainstream investment,” Eltorai says. “Even though this asset class has been around for a century, it has only been considered an acceptable investment class for a few decades.”
As interest in the sector heats up, partially because it’s considered a relatively safe investment, more money comes in.
“You have more money coming into real estate, whether it’s institutional or even individual,” Eltorai says. “There’s more competition. There has been this chase for yield, and that’s contributing to rising prices in secondary and tertiary markets.”
By: Les Shaver (GlobeSt)
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“I think in the first half of the year capital will rush to put money to work ahead of the election and before the Fed changes its mind on interest rates.”

What could bring the CRE markets down, or at least to a pause, this year? Tariffs didn’t do it; the inverted yield curve (or re-inverted as recent events show) had no effect.
One possibility is the US presidential election, according to RCM/LightBox’s National Investor Sentiment Report.
Before the election, however, investors will rush to place money, creating a temporary surge in activity in the first two quarters. “I think in the first half of the year capital will rush to put money to work ahead of the election and before the Fed changes its mind on interest rates,” K.C Conway, CCIM chief economist says in the report. “The wind is at your back for the first six months.”
The report, which surveyed investors, found that the top threats to CRE investing this year include a wait-and-see approach until after the 2020 presidential election (33.5%), topped only by a change in economic conditions at 34.9%.
For the moment, CRE investors, brokers and lenders remain optimistics about 2020, with experts pointing to the strength of market fundamentals, the availability of capital and global investor confidence.
There are some cracks in this picture, though.
According to Conway, about 52% of the $4.3 trillion in total CRE debt in the US is held by banks. Given the slowing economy, banking regulators are looking closely at that allocation and may force a pull back, he says. “Any developer who relies on capital to keep the business moving might want to diversify lending sources,” he says. “While we all want to be loyal to a long-term lending source, we’re heading into a cycle where that might be dangerous. Many development projects are years in the planning and any disruption to the financing can create challenges.”
This is not true for all CRE sectors, though. Multifamily, for example, remains robust. “As 2020 gets underway, we are confident diversified capital flows into multifamily will drive transactions, despite the possible uncertainty which may occur as a result of the political influences of the 2020 presidential election,” says Brian McAuliffe, President, Capital Markets for CBRE, who focuses on the multifamily sector. “We don’t anticipate a significant change in activity, but we’ll see as we head through the first few quarters,” he says in the report.
And even though a significant downturn appears unlikely, many companies are already taking a more defensive stance in evaluating target markets, identifying assets for acquisitions, and defining underwriting criteria, according to the report.
“If I had to put a word on the coming year in terms of the economy and the market the word would be deceleration,” says Hugh F. Kelly, CRE Special Advisor at Fordham University’s Real Estate Institute. “We’ve enjoyed a very long run of expansion, to the point where pricing is very high for most commercial real estate assets. At the very least we should be focusing on things slowing down in 2020.”
By: Erika Morphy (GlobeSt)
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View a New Mexico Market Trends Summary Report, which includes January 2020 Commercial Market Trends. This report includes the total number of listings, asking lease rates, asking sales prices, days on the market and total square feet available.
Disclaimer: All statistics have been gathered from user-loaded listings and user-reported transactions. We have not verified accuracy and make no guarantees. By using the information, the user acknowledges that the data may contain errors or other nonconformities. Brokers should diligently and independently verify the specifics of the information you are using.