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Commercial Real Estate

Susan Gwin Burks: New Year, New Challenges for Capital Markets

In 2017, capital markets will be influenced by a combination of reduced leverage, rising interest rates, and regulation.

To say we’ve had a good run since the cycle began its uptick in 2012 is a gross understatement and one that would be met with lively conversation! So what has this run done for Dallas-Fort Worth? DFW now takes the prize as the leader in Texas for current and future job growth, boasts the lowest unemployment rate, tops the chart in corporate relocations, and ultimately set the investment sales table for record deal volumes in 2016. With that in mind, what do we expect for capital markets in 2017?

Commercial mortgages have changed because we have seen a push from banking systems, life insurance and lending companies to reduce leverage, or loan-to-value ratios, and I believe this will continue. In reality, there is plenty of equity and debt capital to fuel the commercial market, and many agree that the greater equity requirement will go a long way to produce more moderate downturns where the survival of equity is a safer bet. All in all, reducing leverage should not produce a negative impact for 2017.

As always, regulation will be another big influencer in 2017. The largest lenders believe regulation is constraining capital and removing liquidity from the market. In a recent Emerging Trends in Real Estate survey, 47.4 percent of the participants foresee debt underwriting standards to be more rigorous, up from 12.9 percent the prior year. Regulation has slowed the underwriting process, and although it takes more time to solidify investments, new regulation has not slowed the demand to invest. While some feel shackled, the private players in the debt market are chomping at the bit for the opportunity to place more.

Lastly, if the Federal Reserve raises interest rates above 50 basis points—which I believe will happen in 2017—pricing, timing, and total volume could all be affected. However, I do not believe this will slow the investor feeding frenzy on properties. Overall, DFW is still viewed as having a low risk profile compared to most major metropolitan markets.

Only time will tell what will impact capital markets this year and if it will inhibit or advance growth. Our research points to either a mirroring of last year’s performance or an improvement. There is no doubt the stars have been aligned in our backyard and we should continue to see a great show in 2017!

Susan Gwin Burks is a senior vice president for the Dallas-Fort Worth office of Colliers International.