Why 2019 has seen record growth in loan volume
Deal volume for commercial real estate continues to trend upward, according to a blog post by Money 360. If this continues, 2019 could be the tenth consecutive year of positive absorption, increased rents, and positive valuation across property types. As a result, loan volume continues to grow.
Second-tier markets are more attractive for companies, millennials, and investors where investors follow job and population growth. Gary Bechtel, president of Money360, said, “This time last year, we surpassed $750 million in loans closed since inception and now, we’re experiencing an increase in demand, particularly for financing of multifamily, office and industrial properties in the growing tier-two cities throughout the U.S., leading to [Money360’s] surpassing $1.3B in loans closed.”
2018 was a strong year for the industry as well, allowing continued growth in various markets into 2019. Though there was some concern regarding interest rates, there have been some valuable changes by the Fed. “Vacancy rates are low, particularly in multifamily and industrial markets and cap rates have remained steady or even lower on certain asset classes,” said Bechtel. Following a Fed rate increase, rates have decreased and the Fed is shifting its strategy. Bechtel recognizes the value of this, recognizing how “lower interest rates allow transactions to underwrite easier and provide lenders with more debt service coverage, especially on lower leverage transactions.”
This has allowed lenders to make transactions that they otherwise would not have made last year at this time. Multifamily and industrial markets continue to be the top trading asset classes while office also sees strong capital demand.
Areas that have seen record-setting job growth include Phoenix, Seattle, Austin, and Atlanta. This has been driven by the technology sector. Bechtel said, “these areas offer environments conducive to business, a plethora amount of job opportunities and an affordable cost of living relative to other areas, which are all factors that yield greater transaction in these markets”