Seattle Commercial Real Estate LLC closely follows lending as a function of serving our clients. The lending atmosphere is a barometer of how confident the banks are in the economy and how various segments, such as commercial real estate and Multi-family are viewed. The Q1 outlook by a major bank is interesting in terms of how they view the economy as we have indicated in a previous publication (link to article on economy)
CMBS is the acronym for Commercial Mortgage Backed Securities. This an interesting barometer since it will ultimately drive all lending. Their first contention is international where they site global economic uncertainty. This marks three quarterly reports in a row in which GDP (Gross Domestic Product) was below estimates in the United States. The costs of borrowing have risen and will continue to do so with increased regulation coming into play at the end of the year. Additionally, the volume of transactions seeking financing has slowed.
The CMBS is generally looked at for institutional grade properties or “A” properties in office commercial real estate, industrial real estate and commercial real estate. It is all a function of risk. If the lenders are viewing their prime loans even slightly negative then it comes with a guarantee that Class B and C properties will be viewed even less favorably. It is in these, the non-institutional graded properties that are more typical of the client base Seattle Commercial Real Estate serves, that the effects will be more clearly felt. The knee-jerk reaction is simple: if risk is perceived, then capital will flow towards more security and thus the costs for all the rest of us will climb. Something to think about.