Berkadia, a joint venture of Berkshire Hathaway and Jefferies Financial Group, recently issued an analysis of a survey it conducted of over 150 investment sales brokers and mortgage bankers. The responses addressed a number of hot-button issues, including interest rates, transactional predictions, the changing role of the government-sponsored enterprises (GSEs), and the effect of technology on the industry.
The survey and analysis drilled down on these key areas:
- Expectations concerning deal volume and capital available in the market;
- How the 2018 interest-rate hikes have affected the outlook for the year ahead;
- Confidence in GSE lending, despite potential reform of Fannie Mae and Freddie Mac; and
- How tech will play a role in the industry over the next 12 months.
The respondents remain bullish on the near-term future but are hedging their bets by citing the effect of interest rates.
“The market absorbed the heavy interest-rate increases of 2018, but interest-rate uncertainty in the year ahead could impact the current level of investor interest,” says Ernie Katai, executive vice president and head of production at Berkadia. “Last year, we survived four rate increases. We’re all still alive, and we won’t see four more this year.”
The findings also point to a steady level of transactions and an increase in deal size. Eighty-nine percent of respondents expect the number of multifamily transactions in 2019 to remain the same or decrease from the year prior; however, 77 percent say multifamily deal size will either grow or at least remain the same as in 2018.
Katai believes the growth in deal size may happen because of excess capital to invest. “The capital being raised continues to be at a significant and rapid rate,” he says. “There are so many players out there, with funds that are in the billions, and [who] plan on transacting quite a bit this year.”
Besides all that cash sloshing around, a more conservative attitude about ROI may also spur things along. “We’ve heard that investors are willing to have lower yields,” says Katai.
The relationship between the current administration and the GSEs remains foggy, but confidence is high that Fannie and Freddie will be carrying the bulk of the lending load this year. Berkadia says 82% of the poll's respondents are expecting the GSEs to provide most of the financing this year. The ongoing discussions around GSE reform aren't off the table, however—67% of Berkadia professionals agree that the potential regulation will have a big impact on the way they do business this year.
—Ernie Katai, executive vice president and head of production, Berkadia
The specter of GSE reform raises uncertainty, but Katai thinks the buck will stop with the buck. “The [GSEs] are making good money for the government. [And] the last time I looked, the government needs as much money as they can get their hands on,” he says.
The effects of technology are also starting to have an effect on an industry that is slow to change. Katai notes that in November of last year, $3 billion worth of venture capital was raised to fund technology designed to disrupt the CRE market. “The next 10 years are going to look significantly different. This industry is still Sears, Roebuck and Amazon hasn’t even been created yet,” says Katai.
Similar to what’s happening on the residential side, Katai believes the emerging technology will affect how humans will interact with each other in the near future.
“The data coming at all of us is mind-numbing. We’re going to go from investment bankers and investment salespeople to tech-enabled advisers. We have to start seeing around corners for our clients. That’s going to be the future of this business,” says Katai.