Capital Availability for Core Assets Despite Market Turmoil
CBRE Report Sees Continued Capital Availability for Core Assets Despite Market Turmoil
Multifamily Properties May Benefit From Investor Risk Aversion
New CBRE Americas Viewpoint Analyzes Effects of Economic Slowdown, U.S. Credit Rating Downgrade and Financial Market Turmoil on Commercial Real Estate
Los Angeles, August 9, 2011 - A new CB Richard Ellis Group, Inc. (CBRE) Americas Viewpoint, “US Deficits, Debt and Commercial Real Estate,” analyzes the effect on commercial real estate of the recent economic slowdown, the Standard & Poors’ downgrade of the U.S. credit rating and turmoil in the global financial markets.
“The US faces multiple challenges including tepid economic growth, gridlock in Washington, and an unsustainable debt trajectory. The inability to enact a comprehensive solution to the economic and debt concerns led Standard & Poor’s to lower the long-term rating of the US debt from AAA to AA+,” said Asieh Mansour, PhD, CBRE’s Head of Americas Research. “While we anticipate continued stock market volatility, commercial real estate will not fare as poorly because it remains a preferred asset class, within a well-diversified multi-asset institutional portfolio.”
According to the report, prepared by Ms. Mansour and Dr. Raymond Torto, CBRE’s Global Chief Economist, commercial real estate investors may react differently to current conditions depending on their risk profile. Investors with higher risk tolerance will look for opportunities in volatile markets while more risk-averse investors may delay new transactions.
The CBRE Viewpoint states that early signs in the CMBS market indicate a withdrawal of capital, with spreads widening. However, there continues to be ample supply of capital available for core deals and the report notes that lending rates should stay relatively low, with loans conservatively underwritten with stricter covenants. The more risk-averse capital will look for core, income-producing assets in primary markets to satisfy demand.
“US Deficits, Debt and Commercial Real Estate” cautions that there will be less transparency on pricing metrics for real estate assets as valuation metrics may become more difficult to underwrite. Reduced investor confidence will cause a rotation toward least-risky assets and increase demand for core assets in primary markets. Assets further out on the risk spectrum -- secondary markets, peripheral locations, value-add “plays” -- will be less desirable until the economic uncertainty is reduced, according to CBRE.
The CBRE analysis projects that the multi-family sector should be the least affected fundamentally by any slowdown and should benefit from increased investor risk aversion. However, deal structure will be an issue and riskier opportunities will be more difficult to transact.
To view the full report click HERE.
About CB Richard
CB Richard Ellis Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services firm (in terms of 2010 revenue). The Company has approximately 31,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 300 offices (excluding affiliates) worldwide. CB Richard Ellis offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.