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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.