Q&A: Trends in Commercial Real Estate with the MBA’s Jamie Woodwell
Arbor recently spoke with Jamie Woodwell, VP, Research & Economics at the Mortgage Bankers Association (MBA), and used the opportunity to discuss the future of multifamily lending, trends in industrial and logistics spaces as well as the state of foreign investment in U.S. real estate.
What are your thoughts on how technology is impacting the way commercial investors are accessing financing?
Woodwell: Commercial real estate has always been heavily data dependent, and that naturally leads one to technology. The amount of information available to investors and lenders has expanded tremendously, making it more accessible and actionable.
Woodwell: This is the result of two trends. First, industry firms are now taking advantage of technology and even developing some of their own tech platforms. The second part of the equation is that tech companies or startups are coming into the commercial real estate space to apply technology so that our system can function with a greater level of efficiency.
Can you discuss how the growth of technology and accessible information affects liquidity or volumes overall? Does this lead to more or less lending?
Woodwell: Information tends to promote liquidity — you can see that reflected in the amount of securitization going on. As the GSEs are doing more through securitization platforms, that, in turn, is increasing the amount of information available to the market.
Investors are also becoming able to track specific markets in very great detail. In addition, they are now able to understand what might be happening with an individual asset that’s part of a pool, securitization or investment portfolio. These factors contribute to the transparency of investments in commercial real estate, which again, translates into promoting liquidity.
Is today’s ‘slow growth’ economy impacting certain asset classes over others in terms of demand for financing?
Woodwell: The Q2 GDP number was recently revised to 3.1% and we saw an average of 185,000 jobs added each month from June to August — so that doesn’t sound too slow to me. Of course, if you examine different property types, you have different drivers for each asset class.
Looking at multifamily, we see this consistent tug of war between supply and demand. That will be the major factor driving rent and NOI growth patterns across the various apartment markets.
For office, while we’ve experienced steady employment growth, there has been a slight drag due to the continued efficiency of open and flexible workspaces. This will improve as more companies go through those changes.
In terms of retail, despite the challenges of e-commerce, retail sales have continued to pick up. Sure, more of it is going online, but there continues to be growth.
Industrial is also very positive in terms of demand.
Overall, new supply coming online is being met and matched with new demand. The economic growth has continued to push demand for commercial real estate, not only in multifamily, but other sectors as well.
How do you think that the evolution of retail/logistics is going to impact the industrial sector?
Woodwell: There’s been a lot of press coverage of retail — and more specifically — some of the challenges that e-commerce is bringing to traditional retail. Industrial tends to get the other side of that coin in that it is benefiting from these trends. At the same time you’re seeing increased demand, you’re also seeing some changes in the type of demand.
Technology is evolving and it’s impacting some of the requirements for space. You also have the focus on the last mile, and how that’s changing some of the requirements in terms of location. To quote one person in the industry — ‘industrial is becoming the new multifamily’ — it has become the darling of investors.
In addition to investment, the fundamentals have been picking up. There has been an increase in both the investor interest and demand, which is prompting a resurgence in industrial, whether it be reflected in pricing or transaction activity.
How are changing interest rates affecting investors’ ability to borrow?
Woodwell: There is a lot going on right now, and the 10-Year Treasury rate has been bouncing in the low 2s for the last couple of months. Regardless of whether rates stay where they are or kick up a bit, they remain extremely low on a historical basis. This can’t help but support both investors who are looking to purchase real estate and existing owners looking to refinance.
If you look at rates, NOIs and the property prices for just about every asset type, they are all above where they were 10 years ago. There is a high probability of the outlook getting better in the next few years. More specifically, as we look at 2018-2019 compared to where prices were 10 years earlier in the depths of the recession, there will be a pretty significant step up in deals and activity.
How does the relationship between global debt and our lending environment impact what you expect to see in terms of foreign investment in U.S. real estate?
Woodwell: We are coming off of a robust period of international investment in U.S. real estate, though there have been shifts in who is investing. Regardless, there continues to be a lot of capital looking to be placed internationally, particularly in the U.S. One reason is that the U.S. continues to be viewed as a safe haven. Another is that commercial real estate is a relatively liquid, dollar-denominated asset. These factors have increased the demand to put money to work in U.S. commercial real estate — and there aren’t any major signs of change in that area.
About Jamie Woodwell:
Jamie Woodwell serves as Vice President, Research and Economics at the Mortgage Bankers Association (MBA). Woodwell is a regular speaker at industry and corporate events, has appeared on CNBC and is regularly cited in the media and on Capitol Hill for his expertise in commercial real estate finance markets. He also oversees MBA’s commercial peer business roundtables and leads special projects such as The Council to Shape Change, a group of single-family and multifamily leaders who work to identify key trends in the industry. Woodwell is also a member of the Urban Land Institute, Urban Economics Association, the Housing Statistics User Group and the Real Estate Associations Research Directors.
For additional insights on the state of commercial real estate, be sure to visit the MBA’s Commercial/Multifamily research center.