Increased financing activity and affordable housing interest expected in the year ahead, according to Berkadia’s 2021 Outlook Powerhouse Poll
NEW YORK – January 27, 2021 – Berkadia’s 2021 Outlook Powerhouse Poll finds that the multifamily sector of the commercial real estate (CRE) industry performed stronger than anticipated in the face of the COVID-19 pandemic. Mortgage bankers and investment sales advisors at Berkadia are optimistic that 2021 will be a strong year for their industry, as they prepare to address the shift in both investor and renter needs born from this global pandemic. The proprietary poll, conducted in December 2020, collected insights from nearly 150 Berkadia investment sales advisors and mortgage bankers across 60 offices to assess expected commercial real estate activity and opportunities for the year ahead.
Despite early anxieties surrounding the potential impacts of the pandemic, two-thirds (76%) of Berkadia’s mortgage bankers and investment sales advisors report that the CRE industry fared better than they expected. Building off this positive sentiment, 85% of Berkadia professionals anticipate the pandemic and ongoing economic uncertainty will have only somewhat or little impact on deal closings in 2021.
“The multifamily industry is one of many that faced challenges last year due to the COVID-19 pandemic,” said Ernie Katai, executive vice president and head of production at Berkadia. “CRE professionals were forced to rethink their business operations and reimagine how to interact with and support their clients. It was an unprecedented year, but we were encouraged by the industry’s response and multifamily’s resilience. We’re optimistic about the future of CRE, including the year ahead and believe 2021 will be a year of recovery and growth from a fundamentals perspective for the multifamily industry.”
When asked about the most prominent investor trends in 2021, Berkadia experts anticipate they will be actively pursuing acquisitions (49%), seeking immediate financing on currently owned properties (22%) and turning attention toward new property types not previously in their portfolio (8%). As such, and despite the fluctuations both up and down over the past year, 52% of Berkadia experts stated that they expect commercial real estate capital conditions will return to normal by the end of 2021.
“We’ve seen record-breaking private real estate equity fundraising in the past few years, with $83 billion raised in 2019 and $23 billion through June 2020 according to Preqin,” said Katai. “We expect to see strong investor interest in multifamily, particularly from institutional, private and foreign investors who are currently weighted heavily towards the hospitality, retail and office sectors looking to diversify portfolios due to its prospects for stability and ROI potential. Our newly launched platform, Berkadia Institutional Solutions, powered by Moran, is positioned to help these investors capitalize on the attractive risk-adjusted returns multifamily has generated over the past 25 years.”
Increasing Need for Affordable & Secondary Market Boom
Given the economic hardships and large-scale uncertainty resulting from the COVID-19 pandemic, investors have shown an increased focus on affordable housing properties. In fact, 91% of Berkadia professionals strongly or somewhat agree that investors are more interested in affordable housing properties now.
“Americans are still facing economic insecurity because of the pandemic, a reality that has only worsened our national affordable housing crisis,” said Katai. “This past year has intensified the need for affordable housing, especially for the essential workers in the cities across our country who cannot work remotely or relocate to suburbs in order to reduce rental costs.”
When asked about the potential solutions that could help improve the current affordable housing crisis, Berkadia experts ranked modifying tax credit policy (45%), increased investor prioritization (16%) and regulatory changes for GSEs (14%) as the top catalysts for potential relief. Furthermore, mortgage bankers and investment sales advisors anticipate Class B (49%), True Affordable (16%) and Class C or True Workforce (14%) will be the housing property-types most of interest to investors in 2021.
“In hand with wide-scale layoffs and other economic hardships, the U.S. has seen drastic demographic shifts as more and more Americans—who have the ability to—have moved outside of costly primary markets,” added Katai. “As a result, the demand for multifamily housing in secondary and tertiary markets is increasing, as renters seek more square footage for remote work. Investors have taken notice.”
According to Berkadia’s Research Team, on the market level, rent appreciation will be highest among secondary and tertiary metros with above-average job growth. A plurality (41%) of Berkadia experts anticipate the Southeast will hold the greatest CRE financing and deal activity in 2021. As an example, a recent Berkadia report states that robust apartment demand sustained healthy fundamentals in the Atlanta metropolitan area in 2020, and underlying rental drivers are expected to persist in the near term. Furthermore, the local resilient workforce, accelerating in-migration and slowdown in single-family home completions underpinned a year-over-year increase in annual apartment absorption, to point towards another strong year for Atlanta’s local multifamily market in 2021.
The Power of Lending
Lending activity boomed last year, which was largely possible due to historically low interest rates and an increase in activity by government sponsored enterprises (GSEs) and the U.S. Department of Housing and Urban Development (HUD). Berkadia’s HUD team surpassed $3 billion in total HUD-sponsored production in late 2020, a record year.
“HUD, specifically, was a lender that was able to provide critical liquidity options over the past year when others simply couldn’t,” said Katai. “This role is one HUD has played before in times of crisis, and its unprecedented activity level has been one of the contributing factors that kept the CRE industry afloat.”
Looking ahead to 2021, Berkadia’s mortgage bankers said the lending source they expect to see the most activity from are GSEs such as Freddie Mac and Fannie Mae (80%). Additionally, when asked about major multifamily financing trends on their radar for 2021, mortgage bankers ranked interest rates (61%) as having the greatest impact. With the potential increase in GSE and HUD activity, along with low rates, lending activity could meet or exceed 2020’s record-breaking levels.
Technology Soars into the Future
Like many other industries, CRE relied on technology to help make a quick transition to remote work early in the pandemic. However, even when COVID-19 and social distancing are a thing of the past, 97% of Berkadia professionals strongly or somewhat agree that the commercial real estate industry will continue to operate digitally more than before.
When asked what will have the greatest impact on the commercial real estate industry over the next five years, Berkadia’s mortgage bankers and investment sales advisors agreed that streamlining deal processes (43%), enhancing investment decision making (25%), enhancing insight into tenant behavior (11%) and increasing flexibility around deal closing (11%) top the list. Furthermore, Berkadia experts noted the benefits of technology and data they believe clients value the most is the ability to make data-backed investment decisions through local and national market insights or property-type data (71%).
About the Powerhouse Poll:
The 2021 Outlook Powerhouse Poll data was collected in an online survey by Berkadia through Microsoft Forms in December 2020. The sample was based among Berkadia’s 60 offices throughout the U.S., consisting of 43 investment sales brokers and 103 mortgage bankers, totaling 146 overall respondents.