Employment Growth Supports Commercial Real Estate Amid Regulatory Uncertainty
June 08 2016 - 8:30AM
Business Wire
CIT Executive Insights Video Features Matt
Galligan, President, CIT Real Estate Finance
- Commercial Real Estate Market Prepares
for New Regulations
- Uncertainty Could Impact Liquidity
- Opportunities in Secondary and Tertiary
Markets
- U.S. Real Estate Is Especially
Attractive for International Investors
A period with ample sources of capital, very low cap rates and
high valuations has set the stage for commercial real estate in
2016, but the impact of coming regulations is yet to be factored
in. Nonetheless, as long as there are only gradual increases in
interest rates and continued modest increases in employment, the
commercial real estate market should operate smoothly. These are
some of the observations presented by Matt Galligan, President, CIT
Real Estate Finance, a division of CIT Group Inc. (NYSE:CIT),
cit.com, a leading provider of commercial lending and leasing
services, in “Regulatory Uncertainty Impacts Commercial Real
Estate” (cit.com/galligan), the latest piece of market intelligence
in the CIT Executive Insights video series.
“Collateralized Mortgage Backed Securities — one major source of
capital — are now bracing for two new regulations that take effect
in the fourth quarter,” said Galligan. “The market is struggling to
interpret the specifics of these regulations. Alternatively, on a
positive note, employment growth has been smooth and steady, which
is a great thing for real estate.”
Some of the other commercial real estate trends Galligan
discusses include:
- Market Prepares for New
Regulations: Collateralized Mortgage Backed Securities (CMBS)
face two new regulations in Q4. One is called Risk Retention, where
underwriters are required to retain part of the risk as they sell
CMBS bonds into the secondary market. The second new regulation
requires senior individuals to sign off on the quality of the CMBS
loan product.
- Uncertainty Could Impact
Liquidity: As a result of a largely unknowable fourth quarter,
many CMBS originators are clearing inventory in the second quarter
in order to help divert any potential risk they may be exposed to
by these new regulations. That could siphon off liquidity needed to
refinance loans.
- Opportunities in Secondary and
Tertiary Markets: There have been differences in yields across
major cities, such as New York and Los Angeles, versus smaller
urban areas. As interest rates begin to climb, the ROI of a deal
will take a notable dip. With real estate opportunities found in a
secondary or tertiary market, often the asset can be acquired at
more favorable terms. The right assets in secondary markets can be
a very attractive place to invest. In any event, these deals and
the banks involved need a liquid CMBS market to be repaid.
- U.S. Real Estate Especially
Attractive for International Investors: Even amid uncertainty,
the U.S. real estate market remains one of the most attractive
sectors for many internationally sourced funds. The tone of the
market is shifting, but opportunities remain.
EDITOR’S NOTE:
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About CIT
Founded in 1908, CIT (NYSE:CIT) is a financial holding company
with more than $65 billion in assets. Its principal bank
subsidiary, CIT Bank, N.A., (Member FDIC, Equal Housing Lender) has
more than $30 billion of deposits and more than $40 billion of
assets. It provides financing, leasing and advisory services
principally to middle market companies across a wide variety of
industries primarily in North America, and equipment financing and
leasing solutions to the transportation sector. It also offers
products and services to consumers through its Internet bank
franchise and a network of retail branches in Southern California,
operating as OneWest Bank, a division of CIT Bank, N.A. cit.com
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version on businesswire.com: http://www.businesswire.com/news/home/20160608005270/en/
CIT MEDIA RELATIONS:Matt Klein, 973-597-2020Director,
Media RelationsMatt.Klein@cit.comorCIT INVESTOR
RELATIONS:Barbara Callahan, 973-740-5058Senior Vice
PresidentBarbara.Callahan@cit.com
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