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Cliff Notes from CMBA State of the State

It’s been a full month since this year’s MBA CREF conference and time to look back at the conference happenings.

During the 2013 MBA CREF conference that took place from February 2 through February 6, the California Mortgage Bankers Association (CMBA) presented their State of the State breakfast.  This year, Mary K. Ludgin, Ph.D., Managing Director, and Director of Global Investment Research at Heitman, presented on the economic issues and trends impacting CRE.

Here are some notes:

  • Housing will be a positive force and key driver in the recovering economy.
  • Although job growth has shown a slow recovery, it is persisting and should accelerate.
  • CRE transaction volume climbing significantly in 2013 and cap rate yields close to pre-recession lows.
  • Multi-family has been helped by falling home growth and muted construction.   Apartments leading in construction volume.
  • Wage growth, closer to pre-recession levels, will be a key to a healthy retail sector.
  • US retail sales are defying expectations.  NOI grew in recession and will be stronger in good times (healthy demand and limited construction contributing to NOI growth).  High quality malls are significantly out performing weak malls (“the best get better”).   Big spreads between A malls and B malls.
  • Effect of e-Commerce and 20% annual growth: devastated some categories (books music games) and leveling off.  Retail construction at historic lows and vacancies still high but coming down.
  • Office recovery continues to be slow with downtown markets experiencing lower vacancy rates than suburban; tech and energy markets leading the way.  However suburban markets are improving with rents increasing in more markets than not.
  • Industrial recovery is gaining steam.  Contributing factors (GDP growth; US industrial production; world trade;  US retail sales); good market dependent upon transportation infrastructure (seaport, airport, rail, interstate)
  • Rent growth happening across most major industrial markets (Los Angeles 4.2% growth from Q3 ’11 to Q3 ’12; Inland Empire 2.3%)

Also, a quick note on changes in my world of Phase I Environmental Site Assessments.   The ASTM Standard for Phase I ESAs:  ASTM E1527, which provides a standardized method for conducting and reporting ESAs, will be updated in 2013.   The president of our company, Joe Derhake, was published in the CMBA’s Legal Review this month advising clients on the changes and what they might mean for California Mortgage Bankers.   For a copy of this article, please click here:  Changes to the ASTM E1527.