The American banking system enters 2015 on its most stable footing since before the financial crisis. Bank assets have climbed to record highs over the last year and strains from problem loans, restructured debt, and real estate owned have eased substantially. While the outlook for bank profits is mixed, the tally of qualified borrowers continues to grow in tandem with an improving domestic economy and property fundamentals. Geopolitical and economic instability almost everywhere else in the world is a potential threat to financial system’s health in the United States but has shown few signs of spilling over thus far. On the contrary, by reinforcing the perception of an American safe haven, global conditions are fomenting greater risk-taking by domestic investors and lenders. Read More
By Sam Chandan 2/11 1:00pm
The commercial real estate debt landscape has become considerably more crowded of late. The resulting contest to fund deals, along with historically low cost of capital, has contributed to higher real estate prices and taken an inevitable toll on underwriting standards.
The latter trend is most easily observable in the information-rich CMBS market, but is also present in the competitive overlaps between lenders. A range of indicators, from historically low debt yields to falling amortization, shows us the direction of understanding standards even if it does not tell us our exact position in the risk cycle. Read More
By Sam Chandan 1/19 12:13pm
As they embark on a new year, American investors are more confident than at any time before the financial crisis. Paying little heed to the business cycle or distortions from monetary policy, they are supported in their optimistic assessment by the most immediately observable trends. The economy has grown at a robust pace in recent quarters, rebounding from a brief contraction a year ago. More important, one of the weakest links in the current expansion, labor markets, have shown increased vigor. Save the absence of meaningful wage growth, the last year was the best for net employment gains since the peak of the dot-com era. As of its December meeting, the Federal Reserve now projects that the unemployment rate will fall below its natural level by the end of this year. Barring a significant shock, the outlook is positive. Read More
By Sam Chandan 12/08/14 9:00am
Is there a bubble in the office sector? In the market for the most visible and best-located assets, Manhattan’s current spate of trophy sales begs a more nuanced question: has pricing moved from merely aggressive to excessive? The dominant view amongst high-profile investors and lenders is that pricing remains in check. But that means very little, it turns out, since frothiness in the asset market can only persist as long as the chief stewards of capital believe we remain on an even-keel. Baudelaire could have been talking about real estate markets when he surmised, “the finest trick of the devil is to persuade you that he does not exist.” Likewise, in assessing whether trophy office prices may be prone to correction, we need something more than our basic intuition. Read More
By Sam Chandan 11/06/14 3:56pm
From the vantage point of New York’s most coveted retail storefronts, the recovery in property fundamentals and values is a fait accompli. Rents and price tags for buildings with flashy retail continue rising, surpassing their pre-crisis peaks with increasing regularity. Buyers on the prowl for urban street retail with trophy status—or even a loose resemblance to fixed income—are not alone, but rather are backed up by lenders vying for opportunities to line up their capital behind stable, albeit aggressively valued, properties. Read More
By Sam Chandan 10/15/14 9:30am
Chinese President Xi Jinping travelled to India in mid-September with a stated goal of bolstering political and trade ties between the world’s two most populous nations.
The relationship between the countries has always been uneasy. In the modern era, their territorial and geo-political ambitions have rarely found alignment; as they have jockeyed for regional influence, friction over issues such as the disputed territories of Kashmir and India’s easternmost frontier with Tibet have stymied efforts at cooperation elsewhere. Even as the pomp of the latest state visit was getting underway, Indian and Chinese troops were posturing on their respective sides of the shared Himalayan border. And though there was no indication of conflict in New Delhi’s more civilized environs, the leaders did agree that the region would be well served by an updated perspective on these sources of conflict. Read More
By Sam Chandan 9/11/14 10:30am
With an eye to real estate’s next opportunity, cyclical investors and their lending counterparts are shifting their attention away from the apartment sector in increasing numbers. In place of multifamily, they are expanding their portfolios with an array of commercial assets, both core and value-add. As confidence in the economic expansion has grown and the appetite for risk-taking has recovered its former vigor, the allure of relatively higher yields from retail and industrial properties, in particular, has attracted a rising share of mobile capital.
The latest numbers align with cyclical investors’ updated narrative. The second quarter’s year-over-year gains in transaction volume were dominated by retail property sales, weighted to sales of small- and mid-cap properties in primary and secondary markets. Apartment trades registered more modest increases, though they remained the most traded asset overall. Read More
By Sam Chandan 7/03/14 10:00am
For global capital in search of a home, Europe in its present straits is far from the obvious choice. Not by any means a homogenous opportunity, the Continent’s economies are nonetheless regrettably undifferentiated in their current growth trajectories. Even in Germany, which has served as Europe’s principal economic and political stabilizer since the financial crisis, the economy’s current robustness anticipates a mixed long-term outlook for growth. On balance—and in spite of record valuations in top-tier markets—global capital prefers the United States.
But there is another Europe. For commercial real estate-market participants making significant ventures across the Pond, this other Continent reflects an abundance of opportunities for investment and lending, born in part of the ongoing retrenchment of bank balance sheets and a coincident shortfall in the broader financing environment. The case for these high-quality and well-located investments is made almost entirely at the level of the asset. With few exceptions, the macroeconomic environment in Europe is a qualifier of the underwriting thesis rather than a supportive premise. Read More
By Sam Chandan 6/04/14 11:30am
The way we shop is changing. The reasons are varied: our unfolding economic circumstances, the ever-increasing ease of online commerce and a shifting sense of what the retail experience should offer. For investors and lenders alike, limited foresight into the sector’s evolution implies unique risks. It also weighs heavily on the outlook for billions of dollars in legacy CMBS loans, maturing over the next several years. Those loans are overweighted to the small retail assets that have traditionally been the bread and butter of securitization. Read More
By Sam Chandan 5/07/14 12:31pm
Property lenders of all stripes will originate more debt in 2014. Measured by anecdote, survey, and by the numbers themselves, lending volume is on the rise for assets in primary and secondary markets, for core and non-core properties and for both anchored and speculative development. The uneven and deeply bifurcated commercial real estate recovery—as much a reality for debt as for equity—is a narrative on the wane. In its place, more confident lenders are expanding their field of view. Yet for all the regulatory encroachment of the post-crisis era, few have sought or seen breakthroughs in the calculus of their risk-taking. Read More
By Sam Chandan 3/27/14 2:00pm
The American banking system reached another recovery milestone during the fourth quarter of last year, pushing net commercial real estate lending to its highest level on record. In keeping with recent trends, the rise in outstanding mortgage debt is broad-based, spanning both large and small markets, rather than bifurcated in favor of prime locations. This data should give us some pause, as the increased risk does not necessarily an improvement in borrowers’ credit quality. Read More
By Sam Chandan 3/04/14 12:15pm
The commercial real estate finance industry has entered 2014 with a renewed sense of confidence. The incautious tone at the first quarter’s outlook conferences belies the industry’s recent history and the losses incurred on precrisis lending activities. Instead, heady predictions of higher lending volumes are being proffered as unequivocally positive signs of better days ahead. More is better in the mundane calculus, and the next year will undoubtedly see more lenders in more places enabling investment by a wider range of borrowers. We are hard-pressed to show serious evolution in our approaches to credit risk measurement. But as long as we ignore that capital flows and the cost and capacity for leverage influence prices and risk-taking, there is no cause for a more prudent analysis.
By Sam Chandan 1/08/14 3:56pm
The United States banking system enters the new year on solid footing. While higher interest rates have weighed on residential mortgage activity, pulling bank revenues lower, other measures of performance show the sector drawing further away from the legacy of the financial crisis. Read More
By Sam Chandan 11/27/13 8:30am
The initial recovery in commercial real estate investment activity has been rewarding for life company lenders. Absent robust competition to originate mortgages to institutional borrowers, life companies have expanded their share of the secured debt market while working to hold the line on underwriting standards. It has not been a volume game. The enhanced liquidity from life company lending has been narrowly focused, with the lion’s share of the benefits accruing to a privileged class of well-heeled borrowers. In this segment of the market, life companies offer their most competitive terms. As debt market conditions improve, they are butting up against other lenders. For life companies, this more crowded landscape is a counterweight to improving economic projections and growth in the number of qualified borrowers.
By Sam Chandan 6/04/13 10:30am
This week marks Sam Chandan’s final column for The Commercial Observer, but fear not—Mr. Chandan will continue publishing his insights on the economy and finance in New York City and abroad each month in the pages of The Mortgage Observer.
The Commercial Observer was a gamble. The country was still in recession when the paper Read More