lender confidence

Multifamily asset class wins lender confidence

Tuesday, December 10, 2019

Lenders to the Canadian commercial real estate industry aren’t losing much sleep over their allocations to the multifamily asset class. Newly released results of CBRE’s annual survey finds the highest level of confidence attached to multifamily rental housing with only 2.2 per cent of respondents reporting it causes concern. In contrast, Class B suburban office topped the worry list of 17 different property types, with more than two thirds of surveyed lenders expressing concern about its prospects.

That sentiment looks likely to hold moving into 2020 when more than 39 per cent of survey respondents expect to increase their multifamily budget. That’s on par with the commitment to increase allocations for industrial properties. Seniors housing and hotels are also seen to be on an upward trajectory. Across all asset classes, 56.5 per cent of surveyed lenders expect to maintain their real estate exposure in 2020, while 41.3 per cent are poised to increase it.

“The strong desire for apartment buildings is backed by G7-leading population growth and ongoing housing affordability issues that leave Canadians with few options besides renting,” CBRE analysts observe.

Conclusions are drawn from 32 questions posed to lenders across a range of institutions including domestic and foreign banks, credit unions, insurers, pension funds, private debt capital and trust companies. In addition to picking preferred asset classes, they also weighed in on geographic locales.

“Lenders expressed strong appetite for assets located in Toronto, Ottawa, Vancouver and Montreal,” the report states. “The biggest mover overall was Hamilton, which jumped four spots in the rankings, reflecting strong demand for the Greater Toronto Area and the surrounding region.”

A significant majority of surveyed lenders — 71.7 per cent — do not expect a recession in 2020 and many expressed greater optimism than in 2018. For example, although respondents commonly expressed hesitancy about Class B suburban office and regional malls in secondary markets, the level of concern has actually subsided since last year when 70 per cent of surveyed lenders suggested those asset classes could be problematic.

Confidence also picked up in retail power centres since 2018 when 60 per cent of surveyed lenders called it a cause for concern. Alternatively, some of the best perceived assets classes, such as industrial, Class A office, grocery-anchored retail and seniors housing, nevertheless lost a bit of lustre since lenders were surveyed last year.

While not expecting a recession next year, surveyed lenders generally peg commercial real estate as late in its cycle. For now, 45.7 per cent say the risk of economic recession could exert strong sway on lending decisions in 2020. The state of retail and Canadian housing values are seen as the next most influential factors macro economic factors, while the price of oil and level of Canadian household debt are deemed least influential.

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