. The commercial real estate (CRE) market has undergone a significant recovery since the global financial crisis of 2008-2009. In the following interview, portfolio managers Devin Chen and Jeffrey Thompson discuss the state of the market, including risks and opportunities for investors.
So while prices in major CRE markets have increased by more than 45% since the peak, values in non-major markets have risen only 11% (see Figure 1).
Against this backdrop banks and insurers are actively lending – perhaps the most in recent memory.
Meanwhile, the commercial mortgage-backed securities (CMBS) market, which at its peak in 2007 was the largest source of CRE financing, is also much smaller.
Much of this is driven by regulations and by the Office of the Comptroller of the Currency (OCC), which in 2016 raised concerns about growing concentration risk and loosening underwriting standards in banks’ CRE credit loan portfolios.
Investments in commercial real estate debt and mortgage loans are subject to risks that include prepayment, delinquency, foreclosure, risks of loss, servicing risks and adverse regulatory developments, which risks may be heightened in the case of non-performing loans. The value of real estate and portfolios that invest in real estate may fluctuate due to: losses from casualty or condemnation, changes in local and general economic conditions, supply and demand, interest rates, property tax rates, regulatory limitations on rents, zoning laws, and operating expenses.
There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market.