It would appear that real estate transaction activity in the United States will continue to expand in 2011. We are already seeing a pronounced increase in debt availability, from traditional bank and insurance company sources as well as, dare we say it, CMBS lenders such as the investment banks. It also looks like the FDIC is finally getting in the game and readying some CMBS issues of its own from its extensive mortgage portfolios.
As the debt side returns, equity sources are also expanding but I’m not sure that’s all good news as asset supply (from sellers) hasn’t return to adequate volume levels. Even though property values in all asset classes and property types have rebounded by 20-30% from cyclical lows established in 2009, owners still expect value gains to come over the next 24 months. Only those will impending debt maturity issues seem willing to sell today…either that or they own property in NY or Washington DC where values have rebounded closer to values experienced in the cyclical high period of 2006/2007.
One final comment: The majority of the value accretion we saw occur in 2010 happened because of “the power of zero”, meaning a very low cost of borrowing (in other words, the banks have a near-zero cost of funds which is to some degree being passed on to borrowers who can, therefore, pay more aggressively for stable assets with secure cash flow). The leasing fundamentals which normally drive property values as rents and occupancy levels rise haven’t exactly come roaring back and likely won’t until a much clearer job-growth picture emerges and absorption occurs across all markets and property types. Stay tuned, as we are increasingly hopeful that the labor situation will begin to improve in the near term. In the meantime, well-leased properties in attractive markets will continue to attract significant equity interest due to the huge imbalance of capital supply relative to product availability.