NEW YORK, May 7, 2021 /PRNewswire/ — The CRE Finance Council (CREFC), the industry association that exclusively represents the $4.8 trillion commercial and multifamily real estate finance industry, today announced the results of its First-Quarter 2021 CREFC Board of Governors’ (BOG) Sentiment Index Survey and Special COVID-19 Survey. The results indicate a continued strong upward surge in positive outlook for commercial and multifamily real estate finance, with 95% of the Board expecting the U.S. economy to perform better over the next 12 months, compared to 77% in Q4 2020.
CREFC’s quarterly sentiment Index is derived from the Board’s responses to 10 core questions on the state of the commercial real estate (CRE) finance market. The surge in the Q1 Index is attributed to positive responses to eight of the 10 questions, which have been posed to the Board each quarter beginning in the fourth quarter of 2017.
The main drivers of the surge in the current quarter were related to the Board’s view of CRE fundamentals over the next 12 months. Only 13% held a negative view of CRE fundamentals compared with 43% in the prior quarter with nearly three of four Board members indicating a positive sentiment for all CRE finance businesses over the coming year. One area of concern expressed by Board members was the potential for higher rates over the next 12 months and their impact on CRE finance related businesses.
Special BOG COVID-19 Survey
In addition to the longer-standing BOG Sentiment Survey and Index, CREFC introduced an incremental survey beginning in the first quarter of 2020 focused specifically on the impact of the COVID-19 pandemic on CRE. The current quarter’s results of the COVID Survey reflect a continued upbeat outlook:
- COVID Crisis Not Expected To Be as Severe as GFC. Nearly all Board members (91%) believe CRE will fare better during the COVID crisis relative to the global financial crisis (GFC), continuing a sharp turnaround from the 39% and 65% who indicated the same in the third and fourth quarters of 2020, respectively.
- Most Lending Programs Fully Operational. Most of CREFC’s lenders (71%) reported that their lending programs are fully operational, with only 6% indicating no new lending (compared to 9% in the prior quarter).
- High Expectations for Lending Volumes for FY21. Most Board members (88%) expect overall lending to be higher in 2021 than in 2020 with more than half (56%) expecting volumes for full-year 2021 commercial and multifamily real estate lending to increase by at least 20% over 2020’s tally.
- Foreclosure and REO Expected To Be Manageable. A strong majority (65%) feel that any increases in foreclosure loans and REO assets will be low-to-moderate and the same number (65%) believe that there is sufficient capacity in CMBS servicing to address the impact to CRE assets as a result of the pandemic.
- Leisure Travel to Recover More Quickly than Corporate Travel. The overwhelming majority (76%) expect leisure travel to bounce back quickly with nearly the same number (74%) anticipating corporate travel will have a slower road to recovery.
- Government Relief Not Needed. Sentiment shifted significantly in the latest quarter with regard to how government relief (or lack thereof) would impact the CRE industry. In a sharp turnaround, only 18% indicated that lack of government-sponsored relief for the CRE industry will lead to greater distress; this compares to 56% of respondents in the fourth quarter 2020, who said that a lack of relief would create greater distress.
- Retail Assets Remain Most Stressed:
- By asset class, the BOG (50%) views retail as faring the worst and industrial (88%) outperforming all other asset classes during the pandemic. These views remain consistent following the pandemic, where the BOG (85%) views retail will fare the worst with industrial (74%) continuing to outperform.
- When asked about changes to key asset classes that are likely to result from the pandemic, most believe industrial and multifamily will remain largely unaffected. However, Board members envision changes to the usage of retail (91%), office (91%), and hotel (59%) as a result of the pandemic.
“The latest survey results and continued momentum reflect how far the commercial real estate industry has progressed over the past year,” stated Lisa Pendergast, CREFC Executive Director. “The continued surge in optimism among our board members is undoubtedly punctuated by the impact of vaccine distribution and pent-up investor demand. We expect these two factors will continue to drive the recovery of the sectors impacted most by the pandemic, including office and hospitality. As we move further into a period of recovery across the industry, I look forward to the continued insights and perspective of our Board.”
Detailed results for each question for both the Sentiment Index and COVID-19 surveys can be found here.
About CREFC’s Board of Governors Sentiment Index
The CRE Finance Council (CREFC) is the trade association for the commercial real estate finance industry. More than 300 companies and 13,000 individuals are members of CREFC. CREFC’s members play a critical role in the US economy through the financing of office buildings, industrial and warehouse properties, multifamily housing, retail facilities, hotels, and other types of commercial and multifamily real estate.
Nearly sixty senior executives in the commercial real estate finance markets represent CREFC’s Board of Governors and hail from every sector of the commercial real estate lending and mortgage-related debt investing markets. CREFC Governors include balance sheet and securitized lenders, loan and bond investors, mortgage bankers, private equity firms, loan servicers, rating agencies, attorneys, accountants, and others. CREFC’s Governors serve up to a total of six years on CREFC’s Board and are all senior members in both their firms and the industry.
The goal of the CREFC BOG Sentiment Index is to gauge quarter-to-quarter shifts in market conditions for the CRE finance market and the outlook going forward. The BOG Index equally weights the responses to each question and then sums those weighted responses to create a single index.
SOURCE CRE Finance Council