2017 Real Estate Market Sentiment Survey|1
Given the backdrop of historic political change-over in Washington, D.C. and record-setting stock market highs, rising interest rates continue to dominate concerns for U.S. commercial real estate executives in 2017, according to Seyfarth Shaw's 2nd annual survey of the commercial real estate market.
Rising interest rates continue to dominate concerns.
Seyfarth's 2017 Real Estate Market Sentiment Survey found that respondents are even more hawkish (98 percent) about interest rate increases this year compared to last year (90 percent). Of these "hawks," 77 percent expect multiple rate increases in 2017.
From interest rates to equity sources to the new Administration, Seyfarth Shaw's 2017 Survey examines the industry's current market sentiment:
Hopeful Sentiment Split: Respondents are evenly split regarding how many basis points the commercial real estate market can absorb before experiencing a material adverse impact: 51-100 Basis Points (33 percent) vs. 101-150 Basis Points (32 percent).
Fed Fears: With the Federal Reserve announcing its intention to raise interest rates multiple times in 2017, respondents again rank rising interest rates as their top concern for 2017. Notably, political change-over and tax policy rank fourth and fifth this year, overtaking maturing CMBS loans from the year before.
Terrorism Today: An overwhelming majority of respondents (83 percent) are not concerned that an act of domestic terrorism will impact their projects in 2017, compared to 70 percent last year. Of the remaining 17 percent, a majority will consider their decision to buy, sell, capitalize and lend in response to such an incident.
Equity Play: 36 percent of respondents indicate that Institutional Investors would be their primary source of equity. 21 percent report no engagement of third party equity.
Lingering CMBS Concerns: As in 2016, concern regarding the industry's ability to refinance record levels of maturing CMBS loans remains strong: 86 percent of respondents express concerns about the industry's ability to refinance the CMBS debt that is maturing in 2017, nearly matching 87 percent in 2016.
White House Impact: Last year, Republican candidate Donald Trump was the clear frontrunner among commercial real estate executives. Over two-thirds of respondents this year believe that the Trump Administration will have a positive impact on the 2017 commercial real estate market.
Red Tape Relief: Of the respondents who believe the Trump Administration will have a positive impact on CRE in 2017, Deregulation was top of mind with most respondents followed closely by Tax Reform. Notably, as the Administration poises to take on DoddFrank, many survey respondents single out its dismantling as a positive impact for the industry.
Brexit Bluster: More than half of respondents are not at all concerned about Brexit's impact on the U.S. market.
2017 Real Estate Market Sentiment Survey|1
Q1: How many interest rate increases do you expect from the Federal Reserve in 2017?
Hawkish: At least one rate increase
Dovish: No rate increase
By an overwhelming majority, 98 percent of respondents describe themselves as "Hawkish," exemplifying the great confidence that executives believe the Federal Reserve will raise interest rates at least once in 2017.
The majority of respondents (62 percent) expect two rate increases in 2017 with another 15 percent expecting three or more.
2 | 2017 Seyfarth Shaw LLP
Q2: In 2017, how much of a move up in interest rates can the CRE industry absorb before there is a material adverse impact on the CRE industry?
050 Basis Points 51100 Basis Points 101150 Basis Points 151200 Basis Points 201250 Basis Points Above 250 Basis Points
11% 33% 32% 17%
Respondents are evenly split regarding how many basis points the commercial real estate market can absorb before experiencing a material adverse impact: 51-100 Basis Points (33 percent) vs. 101-150 Basis Points (32 percent).
17 percent believe the industry could safely manage an increase of 151-200 basis points.
11 percent believe the industry can only absorb 0-50 basis points.
2017 Real Estate Market Sentiment Survey|3
Q3: W hich of the following represent the greatest concerns for the CRE industry in 2017?
Rising Interest Rates CRE Supply/Demand Issues U.S. Banking Regulations Political Change-Over Tax Policy Maturing CMBS Loans Reduced Foreign Investment Trade Policies Domestic Terrorism Brexit
888 772 684 640 634 603 569 528 404 334
The three greatest concerns facing industry executives in 2017:
1. Rising interest rates (888)
2. CRE supply / demand issues (772)
3. U.S. banking regulations (684)
Notably, political change-over (640) and tax policy (634) rank fourth and fifth this year, overtaking maturing CMBS loans (603) from the previous year.
4 | 2017 Seyfarth Shaw LLP
Q4: A re you concerned that an act of domestic terrorism will impact your 2017 projects?
NO 83% YES 17%
The majority of respondents (83 percent) are not concerned that an act of terrorism on U.S. soil would impact their projects in 2017. Concerns waned from last year, dropping from 30 percent to 17 percent.
Q5: [If "yes" to No. 4] How would an act of domestic terrorism likely impact these projects? Check all that apply.
76 percent of respondents say such an incident would impact their decision to buy, sell, capitalize and lend moving forward.
43 percent of respondents report that an incident would impact where they would buy, sell, capitalize and lend. 38 percent say they would hire more security after an act of terrorism.
Decisions to Buy/Sell/Capitalize/Lend Where to Buy/Sell/Capitalize/Lend Hire More Security Avoid Larger Metropolitan Markets
76% 43% 38% 10%
2017 Real Estate Market Sentiment Survey|5
Q6: H ow concerned are you about the industry's continued ability to refinance record levels of maturing CMBS loans in 2017?
Not at all concerned Slightly concerned Somewhat concerned Moderately concerned Extremely concerned
14% 29% 37% 18%
There is consistent concern among respondents over current CMBS loan levels: 86 percent report concerns with 14 percent reporting no concern at all.
Again, these concerns could be further intensified by the expectation of rising interest rates as predicted by respondents in Question No. 1.
Q7: In 2017, what will be your primary source of equity?
Private Equity Foreign Investors Individual Investors Institutional Investors We do not employ third party equity Other (please specify)
36 percent of respondents indicate that Institutional Investors will be their primary source of equity. 21 percent report no engagement of third party equity.
6 | 2017 Seyfarth Shaw LLP
Q8: D o you think the new Trump Administration will have an overall positive impact on commercial real estate in 2017?
Over two-thirds of respondents believe that the Trump Administration will have a positive impact on the 2017 market.
Q9: If yes to Q8, which will have the most overall positive effect?
Potential Dismantling of Dodd-Frank Deregulation Tax Reform Infrastructure Investment Trade Policies
Overall Deregulation (292) and Tax Reform (290) are in a dead heat for the most positive impact according
to respondents. 292
Respondents specifically single out the dismantling of 290 Dodd-Frank (235) as a key positive impact from the
new Administration. 209
2017 Real Estate Market Sentiment Survey|7
Q10: Are you concerned that Brexit will significantly impact the U.S. commercial real estate market in 2017?
Not at all concerned
More than half of respondents indicate no concern regarding Brexit's impact on the U.S. market.
Somewhat concerned Moderately concerned 2% Extremely concerned 1%
8 | 2017 Seyfarth Shaw LLP
In January 2017, Seyfarth Shaw surveyed real estate executives via email to gauge their top concerns for the coming year, which included owners, developers, investors, asset managers, brokers, lenders and consultants. 151 respondents took the survey.
Question No. 3 used an inverse weighted ranking system to score each response. For example in No. 3, 1 = 10 points, 2 = 9 points, 3 = 8 points, 4 = 7 points, 5 = 6 points, 6 = 5 points, 7 = 4 points, 8 = 3 points, 9 = 2 points, 10=1 point.
Question No. 9 used an inverse weighted ranking system to score each response. For example in No. 9, 1 = 5 points, 2 = 4 points, 3 = 3 points, 4 = 2 points, 5 = 1 point.
Question No. 5 was only made available to those who answered "Yes" to Question No. 4.
Question No. 9 was only made available to those who answered "Yes" to Question No. 8.
Due to rounding, percentages used may exceed 100.
Seyfarth Shaw represents the Trump Organization.
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2017 Real Estate Market Sentiment Survey|9
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2017 Seyfarth Shaw LLP. All rights reserved. Prior results do not guarantee a similar outcome. #17-3987 M3