Equity investment capital targeted for commercial real estate has been sitting on the sidelines for well over a year. A number I heard at last week’s Urban Land Institute conference was $150 billion, which could be leveraged higher if only leverage were available. Now it appears that debt is coming back according to an article posted this week on LoopNet. Traditional lenders are offering better terms while new players are entering the market. According to the article, “While trophy properties in major markets are seeing most of the increased lender interest, assets in secondary markets are also attracting stronger interest.”
This graph from Real Capital Analytics seems to support that view. Cap rates have already turned lower in primary markets and seem poised to turn lower in secondary and tertiary markets. This trend is based on low deal volume, but volume is starting to rebound, up 25 percent in the first quarter compared with the very low base in the first quarter of 2009.
It’s hard to believe because the market seemed frozen as recently as six months ago, but buyers, sellers and lenders, while not all on the same page yet, seem to be moving in that direction.