Sunday, 20 May 2018 07:45 PM
Company Update
LOS ANGELES, CA / ACCESSWIRE / May 20, 2018 / U.S. commercial real estate is not over-leveraged. According to Neil Shekhter, levels of commercial real estate debt in the United States have risen in a much less frenzied manner than in prior cycles, particularly when compared to what occurred during the commonly-cited Great Financial Crisis, or GFC. In fact, the percentage of GDP in the United States represented by real estate debt actually reached its high point of 23.1% back in 2009. Following the collapse is known as the GFC, a de-leveraging of commercial real estate occurred, with the aforementioned ratio dropping down to 19.1% by 2013. Though it is true that total asset value within the United States is currently higher than pre-recession levels, the accumulation of overall debt has in fact slowed. This stands in contrast to the global expansion of both sovereign and private debt obligations, something which has raised red flags at the International Monetary Fund. Though present levels of real estate debt in the commercial realm are indisputably higher than the long-term 17.9% average, it is our opinion that they are actually sustainable, provided that low levels of interest rates and inflation rates persist.
In the midst of the current cycle, there has been a hesitancy among owners and lenders to utilize leverage the property level. Underwriting for loans has taken a turn toward the conservative. It is worth noting that owners at the institutional level have decided to carry a lower degree of property leverage at this moment than they did in the run-up to the GFC. NCREIF reports that value on a debt-to-market basis is presently 41%, standing in comparison to 2007's average of 48%. Assessment of loan-to-value ratios related to commercial property for fixed-rate, permanent financing also reveals lower levels when compared to 2007 numbers, according to CBRE. Also, underwriting is now of higher quality when adjusted for stressed cap and amortization rates. Looking back to 2007, we predicted that the rate of loan originations that carried a stressed refinance loan-to-value ratio of at least 100% stood at 26.6%. The same measure in 2017 is at just 14.1%.
The International Monetary Fund reports that the level of global debt is at a historic peak. The figure now stands at a level that can be equated to 225% of global gross domestic product. This is a rise of 12% beyond the prior high point of 2009. Both emerging and developed economies are seeing surges of private and public debt. It is the concern of officials from the IMF that macroeconomic risks on a global level may be exacerbated by raised interest rates resulting from growing debt levels. We are of a similar opinion, though we also assert that debt in the American commercial real estate realm needs to be considered separately from increases in sovereign and corporate debts.
It is true that real estate in the commercial sphere is sure to experience comparable volatility to other types of assets in terms of macroeconomic shifts, the lower leverage level at present provides investors with some defensive options should rates dramatically rise. Indeed, if de-leveraging takes place in other markets including emerging ones and corporate realms, it may be that corporate real estate will perform even better than anticipated, explains Neil Shekhter, chief executive officer of NMS Properties.
NMS has offered quality rentals in the Los Angeles area for nearly three decades. Since 1988, NMS has developed and managed a large portfolio of premier apartment buildings and commercial properties in Santa Monica, West Los Angeles, Brentwood and the San Fernando Valley
Contact:
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- https://twitter.com/neilshekhter1
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SOURCE: NMS Properties Inc.