Capital for investment in real estate debt and equity is anticipated to be plentiful in 2020, according to panelists at the MBA CREF/Multifamily Housing Convention & Expo held in San Diego this week. But the abundance of capital is creating intense competition. Bank portfolio lenders continue to compete effectively to originate commercial real estate loans, providing low rates and low transaction costs on a recourse basis. Insurance companies are originating loans at a record pace.
Meanwhile, panelists noted that CMBS loans have made a significant comeback. After losing market share in the past few years, CMBS originations topped $100 billion in 2019, the largest annual volume since the financial crisis. CMBS originations are expected to exceed $100 billion again in 2020. CMBS conduit lenders are effectively competing by offering more interest-only payments during the loan term and loans on out-of-favor assets like retail and hospitality.
Many panelists do not believe a recession is coming in 2020 and underwriting remains balanced. According to Michael Fratantoni, chief economist for the Mortgage Bankers Association, interest rates are expected to remain low and in a tight range overall in 2020, despite occasionally experiencing some volatile swings. Fratantoni is forecasting the 10-year Treasury yield, which stood at 1.8% at the end of 2019, will climb 10 basis points to 1.9% by the end of 2020.