The CRE Finance Council (CREFC), the industry association representing the nearly $6 trillion commercial and multifamily real estate finance industry, released the results of its Second-Quarter 2024 (2Q 2024) Board of Governors (BOG) Sentiment Index survey. Conducted between June 26, 2024, and July 11, 2024, this survey has provided critical insights into the sector since its inception in the fourth quarter of 2017.
The 2Q 2024 Index decreased to 102.4, a 3% decline from the previous quarter’s 105.4. This change reflects growing caution in the economic outlook and the ongoing impacts of higher interest rates.
Key Highlights from the 2Q 2024 Core Questions:
The survey’s core questions revealed significant changes in expectations and insights:
- Economic Outlook: Confidence in the U.S. economy has waned, with only 11% of respondents expecting better performance over the next 12 months, down from 24% in the previous quarter.
- Federal Policy Impact: Neutral sentiment toward federal legislative and regulatory actions increased to 67%, while negative sentiment decreased to 26%.
- Mortgage and Cap Rates: An optimistic shift, with 41% of respondents viewing the impact of rates positively, compared to 31% in the prior quarter.
- CRE Fundamentals: Stability is expected, with 24% anticipating improvement, consistent with the previous quarter.
- Transaction Activity: Demand is expected to remain strong, with 54% expecting increased investor demand, consistent with the prior quarter (55%).
- Financing Demand: While still robust, expectations for borrower demand slightly decreased to 65% from 69%.
- Liquidity: Expectations for improved liquidity fell to 46%, compared to 57% in the prior quarter.
- CMBS Market: Positive sentiment toward CMBS and CRE CLO demand decreased to 43% from 51%.
- Overall Sentiment: Industry sentiment has moderated with 61% neutral and only 22% positive, down from 35% in the prior quarter.
Observations from Additional Topical Questions:
The additional questions in the 2Q 2024 Sentiment Index provided deeper insights into critical areas affecting the industry, particularly in response to macroeconomic changes and industry-specific challenges.
The survey results indicate a varied response to the sharp increase in CMBS issuance, primarily driven by single-asset single-borrower (SASB) CMBS transactions. While 37% of respondents anticipate continued growth in SASB issuance, reflecting sustained market confidence, a larger segment of 48% expects a stabilization in SASB issuance volume, with a predicted shift toward more traditional conduit transactions.
Regarding the upcoming presidential election, a significant majority (61%) of the respondents believe a victory by former President Trump would be more beneficial for CRE finance. The survey reveals a stark contrast in sentiment, with only 11% favoring a Biden victory and a notable portion (20%) viewing the outcomes of the election as equally positive or negative.
High interest rates and valuation uncertainties continue to strain lending markets, particularly impacting maturing loans across balance sheet and CMBS portfolios. Climate risk and insurance challenges are emerging as significant concerns, which are expected to gain prominence in the coming year. Additionally, the implications of recent legal decisions, such as the Chevron case, and potential changes in lending programs and underwriting criteria for Fannie Mae and Freddie Mac are being closely monitored for their potential impacts on the industry.
Lisa Pendergast, Executive Director of CREFC, remarked, “The 2Q 2024 survey results reflect an industry forging its way through significant uncertainty. As the industry navigates these challenging waters, its resilience and ability to innovate will be key to capitalizing on emerging opportunities while mitigating potential risks.”
For further details on the CREFC 2Q 2024 BOG Sentiment Index and the full report, please click here.
