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OUR COMPANY AFFILIATES

CBRE GROUP

CBRE Group, Inc. is the world’s largest commercial real estate services and investment firm, with 2017 revenues of $14.2 billion and more than 80,000 employees (excluding affiliate offices). CBRE has been included in the Fortune 500 since 2008, ranking #207 in 2018. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services.

INVESTMENT SERVICES

CBRE Global Investors, combined with CBRE Clarion Securities and CBRE Caledon, is one of the world’s leading real asset investment managers with $105 billion in assets under management.

Built up over more than 40 years, our unparalleled platform is focused on real assets, giving our institutional clients access to real estate and infrastructure in the Americas, Europe and Asia Pacific. Our clients benefit from a complete range of investment solutions including equity and debt, direct and indirect, and listed and unlisted strategies.

Trammell Crow Company, founded in Dallas, Texas in 1948, is one of the nation’s oldest and most prolific developers of, and investors in, commercial real estate.The CBRE Global Investors and Trammell Crow Company platforms make up the Real Estate Investments division of CBRE Group.

The Real Estate Investments division is led by
Danny Queenan, Global CEO, Real Estate Investments.

BLOGS

Regularly released content on the state of the real estate and infrastructure industry are produced by our subject matter experts and shared on their blogs. A selection of them can be found below.

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CAPITAL WATCH

The commercial mortgage lending market remains ultracompetitive. The growth in the number of private debt funds and the volume of deployable capital has contributed to the intense competition for financings, tightening loan spreads. The rising pressure to place money in an increasingly competitive environment while still achieving expected returns, has forced lenders to practice greater flexibility and risk-taking. Overall, the availability of capital and strong borrower demand continues to propel sales activity. Transaction volumes in 2018 surpassed 2015-highs, driven by the heightened demand for apartment and industrial assets, as well as several notable entity sales driven by a flurry of REIT privatizations. Cap rates edged downward, with spreads holding well below historical averages. Mortgage origination growth in 2018 closely mirrored lending activity in 2017, while banks tightened loan underwriting standards.

TRANSACTION VOLUMES

Current Status: U.S. commercial real estate transaction volume reached a record-high in 2018, rising to $573 billion – a 17.1% increase from 2017. The rise can be attributed to both higher individual asset and portfolio sales, as well as a spike in M&A activity. The rise in transaction volume was led by industrial property sales, which increased by 32% y-o-y. Retail property sales rose by 35% y-o-y, but this surge was fueled largely by a number of high-profile entity sales.

Outlook: Since market conditions are expected to remain on a solid footing through the near term and as real estate remains attractive relative to other assets classes, transaction volume should stay at elevated levels.

MARCH 2019

$170bn

27.7%

U.S. Transaction Volumes
(Q4 2017 – Q4 2018)

342

14%

Loan Originations Index
(Q4 2018)

2.69%

29bps

10-Year U.S. Treasury
(2/27/19)

2.48%

92bps

30-Day Libor
(2/22/19)

YoY from Q4 2017

U.S. COMMERCIAL REAL ESTATE TRANSACTION VOLUME

Source: Real Capital Analytics

PRINCIPAL CONTRIBUTORS:
Jeremiah Lee
Joey Valenzuela
CAP RATES

Current Status: Despite recent volatility in the financial markets, the implied cap rate spread tightened through the final months of 2018, ending at 286 bps and remaining well below its long-term average of 332 bps. The narrowing spread can be attributed to the increase in the 10-yr Treasury yield over the previous 12-month period, as cap rates were relatively unchanged during this time.

Outlook: Despite rich pricing, commercial real estate remains attractive relative to fixed-income alternatives. As the current cycles matures, anticipated interest rate increases, combined with the continued flow of capital into the sector, will cause spreads to further narrow.

CAPITALIZATON RATES
Sources: Real Capital Analytics, Green Street Advisors, Federal Reserve
CAP RATE SPREAD TO 10-YEAR TREASURY

Current Status: Despite recent volatility in the financial markets, the implied cap rate spread tightened through the final months of 2018, ending at 286 bps and remaining well below its long-term average of 332 bps. The narrowing spread can be attributed to the increase in the 10-yr Treasury over the previous 12-month period, as cap rates were relatively unchanged during this time.

Outlook: Despite rich pricing, commercial real estate remains attractive relative to fixed-income alternatives. As the current cycles matures, anticipated interest rate increases, combined with the continued flow of capital into the sector, will cause spreads to further narrow.

REAL ESTATE SPREADS
Note: Transactions include properties and portfolios USD 10 million and greater. Development sites/land sales are included. Source: Real Capital Analytics 2018
LOAN VOLUME AND LENDER COMPOSITION

Current Status: Preliminary estimates of mortgage origination activity for 2018 show a 3% rise from the prior year, as increased lending by life companies and agencies offset the decline in originations among CMBS lenders and commercial banks, according to the Mortgage Bankers Association Quarterly Originations Survey. A reflection of property transaction trends, lending for apartment and industrial properties increased but declined across other major property types.

Outlook: Despite rising headwinds in the form of slower economic growth and rising interest rates, pressure among both lenders and borrowers to deploy capital will drive commercial mortgage originations through the near term.

LOAN VOLUMES
Source: Mortgage Bankers Association
LENDER UNDERWRITING STANDARDS

Current Status: According to the Fed’s most recent Senior Loan Officer Opinion Survey, commercial lending standards tightened from three months ago, while demand for commercial mortgages showed a modest decline. Overall, heightened competition for loans has forced some traditional lenders to move up the risk curve, financing more transitional assets in secondary markets and eliminating lender protections.

Outlook: Going forward, tighter loans spreads and the intensifying competition to place debt will drive lenders to offer a wider variety of loan products and increasingly take on greater risk in order to achieve previously expected returns.

SENIOR LOAN OFFICER OPINION SURVEY
Source: Federal Reserve Board
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This information is for our clients and investors only. Please note that the content of this report is for informational purposes only and should not be viewed as investment advice or an offer or solicitation. Any opinions are solely those of the Strategy and Research Team of CBRE Global Investors and are subject to change without notice, and may not be consistent with market trends or future events. This research is based on current public information that we consider reliable, but we do not represent it as accurate, updated or complete, and it should not be relied on as such.

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