Analysis: The State Of The Commercial Real Estate Industry

On Feb. 13, the Mortgage Bankers Association (MBA) will kick off its annual Commercial Real Estate Finance (CREF) conference, one of the most important trade events within the commercial property industry.

Ahead of the event, Benzinga spoke with Mike Flood, MBA's senior vice president of commercial/multifamily policy and member engagement, about the trends and issues shaping the commercial real estate industry.

Benzinga: What is the overall state of the commercial real estate market today?

Mike Flood: I would say the overall status is very positive — there is plenty of liquidity in the marketplace and, outside of trying to work through obvious challenges with retail and hotel, marketplaces are good. You have lenders with good liquidity who managed their portfolios well throughout the crisis.

Multifamily is clearly doing well, and so is industrial. Projections for the year continue to increase in nearly every space. This is looking to be one of the leaders coming out of the recovery.

The residential side of the real estate industry has been seen new construction burdened by increased costs from supply chain disruptions and labor shortages. Are you seeing the same problems on the commercial side?

MF: We see that in making sure you have enough folks to work on construction projects and that you have the right materials. But it doesn't seem to have slowed the industry down.

Mike Flood.

What are the hot markets for multifamily housing today?

MF: Honestly, it's almost nationwide. Any major city — certainly New York, Los Angeles, San Francisco — are all in dire need of affordable rental housing, let alone affordable housing. And then we get into rural areas that also need a supply of affordable rental housing.

Is senior housing still a very hot sector within commercial real estate?

MF: Absolutely, and for many reasons. You still have low interest rates — and, yes, we're talking about interest rates increasing, but you have the opportunity to refi and rehab older properties.

The question becomes: how much do we have? How safe are we with our properties? And how fast can we produce them considering an aging population?

What do you see as the role of REITs in the economy going forward?

MF: REITs have been a stable part of the commercial real estate lending and finance landscape for the better part of 50 years and should continue to be.

What we have seen is, since Dodd-Frank has been passed and put into place, it put some different factors onto banks and large financial institutions as to how much risk they want to take. That has left space for nonbanks, such as debt funds and REITs, to step in and provide the financing in areas where banks may not be willing to do that. So, I think they have a traditional role in the space, but probably a growing one.

The upcoming conference is also focusing on Environmental, Social and Governance (ESG) issues. How has the commercial real estate space embraced ESG concepts?

MF: There are many investors who are looking to invest wisely in in properties that are going to be able to withstand climate change. Therefore, lenders take a bigger interest in ESG.

Right now, we have a huge interest in making sure that the buildings that we construct and rehab are better than their environment. There's no doubt that the industry has embraced the idea of ESG: every lender wants to show what they're doing to be helpful in their annual statements.

We have to figure out what is the standard where we can all, as an industry, can sit back and say, ‘OK, when we say we improved water usage, did that happen? And what was the improvement?’

While the industry is certainly embracing ESG and is trying to find ways to be more efficient, but we don't have the standard of comparison. While the industry is embraced, it will start to work with international and national regulators to figure out if there a clear standard we should be using.

Photo: Michael Gaida/Pixabay.