The Berkadia Powerhouse Poll: Still bullish on CRE

Are good things in store for the near future of the commercial real estate market? The mortgage banking and investment sales professionals with Berkadia think so.

According to the 2019 Mid-Year Powerhouse Poll released in early July by Berkadia, the banking and investment pros with the company remain bullish on commercial real estate. And they’re especially interested in affordable housing, which they tag as an emerging asset class.

The interest in affordable housing shouldn’t be surprising. Single-family home prices are rising and so are construction costs. This makes affordable housing a more attractive asset class. According to the Powerhouse Poll, 84 percent of Berkadia professionals agree that affordable housing will have a major impact on the industry in the next year.

But how to encourage developers to add more affordable apartments? That’s long been a challenge. Berkadia officials said that modifying tax credit policy, regulatory changes for the GSEs and local and state government intervention as the top possible solutions.

The survey found, too, that Berkadia pros are following the rise and fall of interest rates closely. When asked what major trends impacting multifamily investing are on their radar for the rest of 2019, investment sales brokers cited interest rates – with 94 percent singling them out – debt underwriting (69 percent) and the political environment (40 percent).

For trends impacting multifamily financing, mortgage bankers ranked interest rates first, with 94 percent of bankers citing this concern. Green financing, cited by 49 percent of responding bankers, and the political environment, 46 percent, rounded out the top three.

According to the survey, 81 percent of Berkadia mortgage bankers expect GSEs to be the primary lending source for the second half of 2019. The survey also found that 81 percent of mortgage bankers agree that potential GSE reform will have a big impact on the way they do business for the rest of this year.

Ernie Katai, executive vice president and head of production in the Southfield, Michigan, office of Berkadia, said that the optimism of his fellow company pros surprised him. The poll was taken after the Federal Reserve Board raised its benchmark interest four times in one year.

Katai was certain those interest rate hikes would have an impact and would muddy the positive outlook of poll respondents. That this didn’t happen – and that the commercial real estate market and commercial financing requests haven’t slowed – is what Katai calls a pleasant surprise.

“Going into the first and second week of January, our CEO felt it was probably time to throw out an optimistic piece to our production people, advising them to keep their chins up,” Katai said. “But then we saw how bullish everyone still was. A lot of the buyers were optimistic, too. They knew they were going to have to take on less in the way of returns, but they also knew they wanted to keep on transacting. They had plenty of capital and they wanted to keep going.”

As of June, Berkadia’s production numbers were ahead of last year’s pace, up by a solid 14 percent, something that Katai said he would not have anticipated in January of this year.

For more from Katai, be sure to check out the next issue of Midwest Real Estate News, which will feature more of our interview with this CRE veteran.