Article about Commercial Evaluation and Small-Balance Commercial Property Research


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Boxwood Introduces New Metro SCPI Reports

Boxwood's popular Small Commercial Price Indices (SCPI) have been expanded into a wholly new series of metro-level reports designed to shed new light on the dynamics of the small-cap CRE investment market for credit analysts, underwriters, and asset and portfolio risk managers.

Double Jeopardy: Supply Scarcity Hits CRE and Small Business Employment

Most mainstream views on CRE investment and space market fundamentals remain upbeat nearly half-way into the year. The blue-skies outlook is framed by rosy U.S. economic headlines and a top-down assessment of the general CRE market punctuated by heroic large deal activity monitored most heavily by the industry press. However, clouds are gathering when it comes to the small-cap CRE market.

$200+ Billion and Counting

Last year's haul of loan originations reminds us once again how fertile the fields are in small-balance commercial lending.

Boxwood's 2019 Client Survey: Bankers Say Commercial Evaluations Boost Competitiveness

It's the proverbial low-hanging fruit. In our recent survey, bank clients didn't frame their use of commercial evaluations in precisely those terms when describing the bevy of benefits produced. But they might have.

Market's Tide Has Yet to Lift All Boats

It' s been almost 10 years since the end of the Great Recession, but it may be surprising that small-cap CRE asset prices have not fully reset across all U.S. metro areas.

Lenders Brace for Possible Reversal of Fortune

Small-balance loan volume was roughly on trend during Q3 of last year according to our latest research. Even so, a rising interest rate environment has slowed both investment property sales and purchase loan activity.

Slowing Growth in Small-Cap Multifamily and SFR Prices Raises Questions

The feeding frenzy for small apartment assets that catapulted prices to record highs may soon be over. Small-cap multifamily prices continued to rise in September and now exceed the previous 2006 peak level by more than 40% according to Boxwood's research. But price growth has fallen off considerably, dropping to a range of single-digit, annual increases nearly on par with a decelerating single-family residential (SFR) housing market.

Lending in More Challenging Times

With $108 billion of closed small-balance commercial loans during the first half of 2018, the SBL market is on pace to exceed the $200 billion level for the sixth year in a row. Yet investment fundamentals are beginning to fade and market risk is ticking up with higher interest rates, peak asset prices and intense competition for loans. Together these factors may challenge this positive outlook or, worse, signal an end to the current cycle.

Second Quarter SBL Originations Advance

Small-balance commercial loan originations rose by 12.6% during Q2 to $57.0 billion as small-cap CRE investors and operators continued to take advantage of a favorable lending climate resulting from a surplus of debt capital coupled with strong operating and investment fundamentals.

Internal Validation of Boxwood's Commercial Evaluation Reports Shows Solid Results

Commercial evaluations are an increasingly important tool for financial institutions that require valuations of small commercial properties. However, unlike appraisals, there is no significant quantitative measures or research regarding the accuracy of evaluations or the risk of relying on them.

SBL Production Engine Sputters as Market Swings

The engine that produced massive small-balance loan originations of $230 billion last year is losing some steam. The $50.6 billion of new loans generated during Q1 cannot be ignored for its heft, but a recent softening trend is not inconsequential either. Total quarterly origination volume was the lowest in four years and receded by 9.7% sequentially and 14.4% YoY.

Recent Deal Flow Ignites Small-Cap CRE Prices

While uncertainties linger about the CRE market's endurance, small-cap investors are proving to be marathoners. U.S. investment activity shows little sign of fading as $38.7 billion of small commercial and multifamily properties under $5MM traded hands over the first four months of the year, outpacing by 3.1% the deal volume for the corresponding period of last year when annual property sales hit a record high.

Boxwood's Guidance for Using Commercial Evaluations

With the agencies' recent doubling of the appraisal threshold amount to $500,000, commercial evaluations are a new-found opportunity for financial institutions to further reduce lending costs while also curtailing appraisal fees for borrowers on selected loan originations.

Unprecedented Rent Inflation for Our Times

Extremely low space availabilities in the small-cap CRE space have electrified rents to the delight of small-time investors. Since 2006 the average annual increase in industrial rents, for example, was a modest 1.5%. Yet small-cap industrial rents have consistently exceeded 2% rent growth in each of the last five quarters, soaring an extraordinary 2.9% over three months ending this past March. 

Rumblings on the SBL Frontier

It wasn’t long ago that commercial banks dominated CRE lending in the small-balance market. That supremacy is facing increasing challenges from a plethora of non-bank lenders including debt funds, marketplace lenders, private lenders, specialty finance firms and selected life insurance companies among others.


The doubling of the appraisal exemption from $250,000 to $500,000 instituted earlier this month could not have occurred at a better time. Though far from a panacea for inherent inefficiencies in small-balance lending (SBL) among commercial banks, the new mandate for commercial evaluations represents a sizable dollar and sense opportunity.

2017 Recap: Small-Cap CRE Annual Return Eclipses Institutional Price Growth

For the first time in seven years, sales prices for small commercial properties outperformed their counterparts in the large-cap domain. Boxwood's Small Commercial Price Index (SCPI) that tracks sales prices of properties trading under $5 million in value finished 2017 with an annual return of 5.9%, the highest price gain since the previous peak in 2007.

Final Rule on New Appraisal Exemption Assists Banks

With the issuance of their final rule last week, the agencies have raised the ceiling on the use of commercial evaluations for the first time in over 20 years, from $250,000 to $500,000. By lifting the appraisal exemption level, the agencies have handed regulated institutions a sizable opportunity to cut their lending costs.

SBL Market Scales New Heights

As the New Year continues into February with uncertainty hovering over the CRE market, we can gain some encouragement from a historical perspective as well as by parsing general and small balance commercial real estate trends.

Report Synopsis: Boxwood's Client Survey on the Proposed Appraisal Exemption Change

With their Notice of Proposed Rulemaking this past summer, the federal agencies intensified the debate over an appropriate change, if any, in the appraisal exemption level as identified in the Interagency Appraisal and Evaluation Guidelines. The agencies proposed an increase in the current de minimus level, locked in at $250,000 for over 20 years, to $400,000

CRE Prices in an Irregular World of Capital Supply

We're often asked how it could be that small cap CRE prices trail by so much the robust appreciation of institutional assets over the last couple of years. We suggest that the answer lies generally with a disparate supply of capital, but we can also say that some small cap CRE markets have nevertheless performed quite well, thank you.Institutional prices, here defined by the RCA CPPI - Core Commercial Index that tracks principal commercial (non-multifamily) transactions above $2.5 million

Small Balance Players Can Take Heart in Housing Trends

Widespread references to baseball inning analogies underscore the pre-occupation these days among industry players with how much more time is on clock (ugh!) before CRE market fundamentals and sales prices begin to falter. Seven years into the market's expansion, an absence of clear directional signals only heightens the unease and perceived investment risk for lenders and buyers.Yet small balance market participants may draw some inferences about the future outlook from residential housing

Boxwood's Randy Fuchs to Join Important MBA Panel Session

We're proud to have Randy Fuchs speak again at this year at MBA's upcoming Small Balance and Portfolio Lending Summit. The small commercial property and loan markets - like the CRE market at large - have been consistently strong over the course of this lengthy market expansion. However, winds of change may be afoot as space market fundamentals have recently stalled and property sales have declined. Join Randy and other panelists for

CRE Prices and Alternative Facts

Popular wisdom is that national commercial real estate prices have reached new heights in the post-financial crisis era. This view was recently boosted by the Federal Reserve Chairman, Janet Yellen, who signaled that CRE prices were "high," while other Fed officials expressed similar concerns about over-heated markets.To combat the potential for asset price bubbles, Federal officials say they are leaning towards enhanced financial supervision of commercial banks and thrifts. That's all well

High Altitude for Small Cap Multifamily Prices

Even after a five-year run, multifamily assets remain the hottest commodity among all primary property types. With a 1% gain preliminarily in August, small multifamily asset prices have returned 7.9% year to date and a sizable 10.1% compared with 12 months earlier according to our latest research. Such properties, defined by transactions with a value under $5 million, largely represent the affordable rental housing stock for lower-income households.The rising price trend for smaller multifamily

Bull Market Remains Undeterred

Small cap CRE space market results for third quarter dispelled any rumors about the bull market's demise, as the latest wave of tenant demand propelled vacancies into unprecedented, low territory.Aggregate net absorption of 68.1 million sq. ft. across office, industrial and retail sectors ranked as the second largest quarterly total in over nine years (after second quarter's record total). This year's massive leasing velocity dismisses outright any concerns about the sustainability of the small cap CRE

A Picture Worth a Thousand Words [or Less]

The classic supply-demand graph nearby is common fodder for industry professionals who know that times are good when the national vacancy rate drops to new lows following leasing demand that convincingly exceeds supply. We can end the story there by subscribing to the idiom above, but to do so comes with the risk of overlooking the latest, impressive chapter.The fact is that small cap CRE fundamentals are at a momentous point in the current cycle because of favorable, if not restrained U.S.

MBA's 'Coming Out' Party for SBL

Appreciate the opportunity to speak at the MBA's inaugural Small Balance Lending conference in Chicago last week as part of a great panel session on market trends. I [Randy Fuchs] likened the event to a 'coming out' party for the small balance market and its participants after years in relative obscurity, and I'm grateful that MBA stepped up to the plate and made it happen.We foresee another banner year for small balance lending; first quarter commercial/multifamily loan originations were

Siren Call of Small Balance Lending

The Sirens were simultaneously beautiful and treacherous creatures of Greek mythology whose enchanting voices and music tempted mariners to draw near, only to shipwreck on the rocky shores of their island. Though their fate is far less cataclysmic, several de novo lenders - some with bucket loads of venture capital for online marketplaces - were beckoned by the siren call of the small balance lending (SBL) market and now face a stark reality: the ostensibly highly-fragmented and boundless

CRE Prices Turn Lower on Market Sentiment

The window looks to have closed on the double-digit annual price gains of the last couple of years. Our reading of the Core Commercial (CC) component of Moody's/RCA CPPI (that excludes multifamily and tracks sales transactions of investment-grade properties principally above $2.5 million) suggests a turn in market sentiment, as large cap CRE prices slipped for a third month in a row, off 0.6% in February and 1.8% since December. The last time the CC Index posted three consecutive months of negative

Heated Small Cap Multifamily Prices Cool Off

The big run-up in small cap multifamily prices has abated. Boxwood's Small Multifamily Price Index for assets under $5 million rose to a new high in January, but the slim 0.2% gain was the lowest monthly increase in four years following a similar increase in December. And though these assets generated a healthy 7.5% annual return in January, it prolongs a downward trend of single-digit, annualized price advances that began last August.The pull-back mirrors somewhat softer multifamily space

As Housing Goes, So Go Small Caps

We often talk about the important relationship between small cap CRE and residential housing. Years ago our research showed that small commercial property prices were more highly correlated with home prices than with prices for institutional CRE assets which tend to be more influenced by the ebb and flow of global investment capital. So it's no surprise that we continue to keep a pulse on home prices and their impact on small cap CRE.Of late, home prices have flattened out. While

Private Lenders Upped Market Share in 2015

Scrappy private lenders increased market share last year as small balance commercial originations volume soared to $180 billion. In this increasingly competitive marketplace, private lenders and individuals grabbed a 1.4% share of the dollar volume for commercial and multifamily loans under $5 million - doubling their stake from 2014 - and elevating the group to fourth from 11th place among the top 20 SBC lenders. See the nearby league table.JP Morgan Chase Bank

Raise a Glass to a Very Good Year

Before the noticeable successes of 2015 disappear from the rearview mirror, it's worth highlighting two dimensions of last year's outperformance in the small commercial property and loan space.First, Boxwood tracked a massive $180 billion of small balance commercial (SBC) loan originations under $5 million in value. This was the highest volume on record, advancing 9% year over year and eclipsing the previous peak of $176 billion posted in 2013. How big a market is this really? Well, the SBC loan volume

A Mixed Bag for Oil Patch Markets

Market perceptions are that CRE conditions have deteriorated in metro areas with a sizable economic dependence on the slumping energy industry. However, Boxwood's Small Commercial Price Index (SCPI) has yet to reveal any substantial across-the-board fallout for CRE in selected oil patch metros. While a couple of the smaller energy-dependent cities have shown a bit of weakness, generally speaking small commercial property prices in these markets proved to be buoyant during 2015.

Tale of Two Domains

Double-digit 12-month returns for large cap CRE prices over 30+ consecutive months have raised some concerns over the sustainability of this rising price trend. For some perspective, the graph nearby plots the spread between Boxwood's SCPI-117 national composite index of small cap CRE prices and large cap prices represented by the Moody's/RCA Core Commercial Index (excluding multifamily). As shown, prices for significant assets were 29.3% higher than small commercial asset values (under $5 million) as of November

Originations Dip among Valuation Uses

Recent property valuations by Boxwood's clients hint towards a possible slowing in small balance loan originations at year end. Originations accounted for 30% of the valuation uses for FieldSmart reports ordered by clients during fourth quarter, down nearly four percentage points from third quarter. Loan renewals rose with a plurality of 33% of all valuation uses Though representing a small overall percentage

Third Quarter SBC Originations Increase

Small balance commercial (SBC) loan originations topped $46 billion during third quarter representing a 5.0% increase for the period and a healthy 8.7% gain year over year according to Boxwood's latest market research. The strong year-to-date volume of $129 billion, sustained by rock-solid space market fundamentals and ample, low-cost debt, is on pace to challenge the record total of $176 billion posted in 2013. See Boxwood's upcoming Small Balance Advocate monthly report for more details and our

Musings on CRE Prices and Differing Market States

Construction cranes, trophy deals and soaring asset values in some big cities can hoodwink us about the overall circumstances of CRE prices. Read the full article here.