Earlier this month, the StackSource team had the privilege of attending the MBA CREF conference in sunny San Diego, CA. Anecdotally, this year's conference drew about 60% of the attendance seen in previous years. The lower turnout can be attributed to the challenging landscape many industry professionals faced throughout 2023. However, amidst these uncertainties, there were glimmers of hope and resilience evident throughout the conference halls.

Market Sentiment

One of the prevailing sentiments shared among attendees was the cautious optimism regarding the shifting tides of the capital markets. While there are indications that the markets are beginning to pivot in a better direction, it's unlikely that we'll see the full effects of lowering interest rates until early 2025. Nonetheless, compared to the "doom and gloom" atmosphere of last year, lenders now seem to adopt a more optimistic outlook, albeit with a healthy dose of caution.

Capital Availability

Transaction volumes may still be experiencing a dip, but there's an abundance of capital waiting eagerly on the sidelines, ready to lend on the right opportunities. Indeed, this surplus of liquidity has spurred lenders to become increasingly aggressive in their pricing strategies, with allocations doubling from the previous year. Moreover, the landscape is ripe with well-priced bridge capital, even extending to distressed or special situations deals, all in exchange for promising yields.

Lender Updates

CMBS deals are showing signs of adaptability, now underwriting full-term interest-only deals to a 1.20x Debt Coverage Ratio (DCR). However, it's clear that lenders continue to favor certain sectors over others, with industrial and multifamily deals enjoying a more favorable reception compared to the cautious approach taken toward office properties.

Speaking of which, the office sector remains a subject of scrutiny among lenders. While there's a general wariness surrounding office investments, there are exceptions, particularly in the realm of distressed office buildings in prime markets, offering reduced basis and limited lease roll-over risk.

Search for Yield

The overarching theme of the conference seemed to revolve around the insatiable appetite for yield among capital providers. Eager to embrace structural risk, they're on the lookout for opportunities to bolster their portfolios, even amidst the lingering uncertainties.

In conclusion, while the road ahead may be uncertain, the insights gleaned from MBA CREF 2024 paint a picture of resilience and adaptability within the commercial real estate industry. As we navigate these waves of change, it's imperative for industry professionals to remain vigilant, agile, and ready to seize opportunities as they arise.