Welcome to First American Title NCS's CRE News Digest, where we cover the biggest news in commercial real estate. As a long-established brand that has been in CRE for over 120 years, First American understands the market and the forces that impact our clients' businesses.
The big picture: Lending profits and losses
Like the CRE industry overall, the current state of commercial lending has bright spots and concerns. The Federal Reserve's decision to raise interest rates to record highs has slowed transaction activity. Traditional bank lenders have begun building up reserves to hedge against bad loans. According to the IMF, the share of non-performing CRE loans in U.S. banks' portfolios rose to 0.81% at the end of 2023, up from 0.4% a year earlier.
Uncertainty in the banking industry has created opportunities for alternative lending. The banking crisis in spring 2023 initially put the spotlight on private lenders, but their role has continued to expand as banks scale back. Large asset managers including Apollo and PGIM told Commercial Observer they saw strong lending volumes through 2023, with Apollo in particular “saying that alternative lending is a big step forward.”[managing] We plan to increase the amount of loans from 2022 onwards.”
Momentum in the CMBS market, in particular, is fueling expectations of an upswing heading into 2025. As interest rates have stabilized, terms for CMBS deals have improved. According to Bloomberg, investors are “signaling big investments in a sign they believe the real estate market is beginning to recover.” But the extent of the recovery remains unclear.
State of the sector: Multifamily housing
Multifamily real estate is in flux after a recent construction boom flooded the market with new units. In a recent analysis, First American senior CRE economist Xander Snyder noted that “the number of apartments under construction…is still near all-time highs, with just under 1 million units currently under construction.” While the supply surge is likely to continue through 2025, data indicates that renters may still face long-term housing shortages. Multifamily starts nationwide fell to 290,000 in March, down 44% from a year ago. Construction and permitting data from major markets including Chicago and California paint a similar picture. However, permits increased in secondary markets in the Sunbelt (Nashville, Knoxville, Greensboro/Winston-Salem), continuing the strong growth pattern for these regions in recent years.
Women making strides in CRE
The CRE industry has been working to advance women in commercial real estate through recent initiatives, conferences and awards programs. Bisnow held its Women Leading Real Estate event in Chicago, where it recognized 22 women who are notable in Chicago's CRE industry. In late March, WX, a New York-based association for women in real estate, launched an initiative to encourage female real estate executives later in their careers to join the boards of directors of commercial companies. The goal of the initiative is to address the underrepresentation of women in leadership positions. Additionally, two outstanding women from First American were named 2024 GlobeSt. Women of Influence. Deputy Chief Economist Odeta Kushi was recognized in the Independent Consultant/Advisor category, and Vice President and Division Area Manager Crystal Cook was featured as a Diversity Champion for her efforts to implement and support diversity, equity and inclusion initiatives across the firm. Odeta and Crystal will represent First American at this July's Women of Influence conference.