RCA Insights

Positive and Negative Changes in Debt and Equity Capital Flows

By on September 21st, 2017

Unrelated but material changes in the composition of both debt and equity capital flows are evident in an analysis of U.S. H1’17 data. On a positive note, an increase in CMBS originations evidences that this important source of debt capital has overcome any obstacles related to new risk retention rules. Equity flows, however, have been negatively influenced by a pullback of institutional capital.

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Ending a six-year trend of increasing investment, institutional investors slowed acquisitions by 30% in H1’17. The pullback was most notable in the highest priced markets such as Manhattan, San Francisco and Boston. Despite the overall sector declines, the news is not uniformly negative as higher yielding secondary markets generally fared better and Dallas, Charlotte and Houston, among others, experienced greater institutional investment.

A recent spike in CMBS originations reverses a multiyear trend of eroding market share for these originators. With the uncertainty around risk retention rules now gone, CMBS originators are in growth mode again. Still, despite the acceleration in activity, we find no evidence of changing LTV standards.

The new edition of US Capital Trends, with additional analysis of buyer and lender trends, results of market activity for August, and a first look at the RCA CPPI, will be published on September 27.

The RCA CPPI report will be released publicly September 28. To learn more about the RCA CPPI and to sign up for reports visit rcanalytics.com

Jim Costello

Jim Costello

Senior Vice President
jcostello@rcanalytics.com

Jim Costello has worked in the CRE space on issues of urban economics since 1990, including a 20-year stint at Torto Wheaton Research. Jim expanded the reach of the Torto Wheaton Research team developing forecasts of global market fundamentals. He also developed approaches to pair the forecast results with frameworks to answer investor questions on asset values and relative investment opportunities.

In the aftermath of the Global Financial Crisis, Jim provided advice to the Treasury Department and helped educate these professionals on commercial real estate performance. Jim is a member of the Commercial Board of Governors of the Mortgage Bankers Administration, where he helps policy makers understand the commercial real estate industry.

Jim is expanding the capabilities of the Real Capital Analytics team on issues of real estate market dynamics. Jim has a master’s degree in economics and is a member of the Counselors of Real Estate.