Commercial real estate favored despite rising interest rates, bank survey finds

March 27, 2006

SAN FRANCISCO -- (BUSINESS WIRE) -- Higher interest rates will not deter investors' appetites for commercial real estate, according to a national survey of bank real estate loan officers released today. The Survey of Lenders' Commercial Real Estate Perspectives for 2006 is conducted annually by Bridger Commercial Funding, and reflects the opinions of 200 participants.

While slightly more than 60% of bankers surveyed anticipate higher interest rates in 2006, they expect that commercial real estate will remain relatively healthy with no increases in delinquencies and defaults. Three-quarters of respondents foresee continued stability in rents and occupancy levels in 2006. Almost 60% of bankers expect cap rates to rise in 2006, and 37% believe they will stabilize at current levels.

Not a single banker projects lower interest rates in 2006.
Despite the specter of rising rates, acquisition activity will remain at current levels, according to 61% of bankers. However, rising rates could chill refinancing activity, with most bankers expecting refinancing to trend flat or down compared with 2005.

By a 2-to-1 margin, respondents cite rising interest rates as the single biggest factor that could stave off continuing economic recovery. Overbuilding was cited as the next highest risk factor, by 26% of bankers participating in the survey.

Among property types, bankers appear most bullish on multifamily. Almost half see multifamily supplanting retail as the sector leader within commercial real estate in 2006, as apartments continue to recover strength.

The office sector is most likely to lag the overall market again in 2006, followed, perhaps surprisingly, by retail. Only 9% of respondents believe that multifamily will be the biggest laggard in 2006, the lowest percentage for any major property type.

New supply will remain in check, with 82% of bankers expecting construction activity to either remain at 2005 levels or to drop off.

Bridger Commercial Funding is the U.S. banking industry's leading provider of commercial real estate capital and balance sheet management services, supplying permanent loan origination and seasoned debt trading capabilities to over 1,600 banks and 4,900 loan officers nationwide. Bridger gives banks ready access to the secondary mortgage market as a balance sheet management strategy that efficiently reallocates risk.

Through the company's CMBS loan origination program, banks boost financial performance by generating substantial fee income and maximizing borrower retention. In addition, Bridger's BankXchange(C) platform optimizes banks' loan portfolio risk profiles and returns by facilitating purchases and sales of loan portfolios, whole loans and participations.

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