Headwinds from rising interest rates and investor caution as U.S. economic growth approaches a record stretch are likely to lead to less traditional lending terms for commercial real estate loan securitization in 2019 throughout the national and Philadelphia commercial real estate markets.
While the Federal Reserve’s rate increases appear to be having little meaningful economic impact on the U.S. commercial real estate market, including Philly office space, Philly retail space and Philly industrial space, they do seem to be influencing a preference for commercial mortgage-backed securities with shorter-term floating-rate debt or interest-only payments, a survey of credit rating agencies said.
This Co-Star Research report involving U.S. and Philadelphia commercial properties is being made through Philadelphia commercial real estate broker Wolf Commercial Real Estate, a Philadelphia commercial real estate brokerage firm.
Full or partial interest-only loans among U.S. and Philadelphia commercial real estate listings made up 87 percent of the commercial mortgage securitization market last year and, according to CoStar analysts, this trend is continuing in early 2019.
These loan dynamics have contributed to single-borrower deals and commercial real estate collateralized loan obligations among national and Philadelphia commercial real estate properties having a very good year in 2018. Those two types of securitizations accounted for $52 billion in deals in 2018, up from $42 billion in 2017, said CoStar analysts.
While the Kroll Bond Rating Agency is forecasting up to $55 billion in these types of issuances in 2019, traditional commercial mortgage-backed deals with longer-term loans in the U.S. commercial real estate market – including Philly office space, Philly retail space and Philly industrial space – started out the first half of 2018 with a solid increase in activity. These deals, however, slowed noticeably in the second half as annual volume in 2018 decreased to $41 billion as compared to $44 billion in 2017.
Overall issuances of this type among national and Philadelphia commercial real estate listings could fall a bit more next year. One of the main factors that could drag down lending volume is a shrinking pipeline of loans coming due for repayment. With fewer loans maturing, there is less demand for borrowing. Loan maturity volume dropped from highs of about $83 billion in 2016 and 2017 to about $34.65 billion in combined maturities over the next two years.
For more information about Philly office space, Philly retail space and Philly industrial space or other Philadelphia commercial properties, please call 215-799-6900 to speak with Jason Wolf (jason.wolf@wolfcre.com) at Wolf Commercial Real Estate, a leading Philadelphia commercial real estate broker that specializes in Philly office space, Philly retail space and Philly industrial space.
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