Commercial real estate capital supply faces challenges.

PositionCommercial

Commercial real estate remains a favored investment sector for a broad range of capital sources, but the sector faces some challenges.

Roddy O'Neal, director of national production with Goldman Sachs Real Estate Finance Group, New York, suggested planning ahead for the coming rollover of loans from the prior peak.

"You can see what's going to happen this year, next year and even into 2017," O'Neal said at the MBA Commercial Real Estate Finance/Multifamily Housing Convention & Expo last month. "To get all that refinancing done is going to take some financing engineering. We're seeing it now in the commercial mortgage-backed securities market, where some players are entering the mezzanine market in anticipation of this volume that's coming."

O'Neal said B-piece buyers are back. "There are probably eight or nine very active players back in a risk position," he said. "They have the first-loss piece. They are buying, so they do a very thorough underwriting. In the B-piece world, that's a good thing because they dictate some of its activity. They have capital and they want to buy bonds--if the bonds are underwritten properly."

Martin Cropp, senior managing director with Principal Real Estate Investors, Des Moines, Iowa, said commercial real estate asset prices now approach their prior peaks--and sometimes even exceed them.

"Gateway market office and multifamily have blown through the peak," Cropp said. "There is still plenty of opportunity in other property types, though. We are very favorable on office and industrial. And multifamily will always be competitive."

Panelists at the MBA conference agreed that affordability remains a concern in the multifamily space. "We're concerned about supply issues in the affordable space, given our mission and the need to maintain that affordability in the market," said Hilary Provinse, senior vice president and head of multifamily customer engagement with Fannie Mae, Washington, D.C. "That's something we'll be looking...

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