However, success boils down to a few fundamentals, such as partnering with a good private equity sponsor, performing your due diligence, especially if you’re pursuing property in an unfamiliar market, and doing your homework on the underwriting.
NEW YORK--(BUSINESS WIRE)--While the commercial real estate sector continues to perform well, the question remains as to the impact a future interest rate increase may have on the sector. Despite this or the potential of a commercial real estate bubble, partnering with a strong private equity sponsor is one of the things investors can do to better protect themselves against a system shock. These are some of the observations from Matt Galligan, President, CIT Real Estate Finance, a division of CIT Group Inc. (NYSE: CIT), a leading provider of commercial lending and leasing services, in “Commercial Real Estate Financing Outlook” (www.cit.com/galligan), the latest piece of market intelligence in a series of in-depth CIT executive Q&As.
“Even with some potential uncertainty on the horizon, the outlook for commercial real estate financing in the year ahead still looks fairly strong,” said Galligan. “However, success boils down to a few fundamentals, such as partnering with a good private equity sponsor, performing your due diligence, especially if you’re pursuing property in an unfamiliar market, and doing your homework on the underwriting.”
Some of the other trends Galligan expands upon include:
- Interest Rate Increase Could Mean Price Decrease: With prices of commercial real estate assets at high levels, an interest rate increase could slow down price growth and cash flow into the sector.
- Growth in “Gateway” Cities: Cities on both coasts that are known to have high traffic between Europe and Asia are seeing growth, while Midwestern cities are experiencing muted growth. Austin and Denver are outliers, doing fairly well because of access to natural resources and technology.
- Millennials Are Driving Multifamily Homes: Multifamily homes are driving the sector due in part to millennials’ purchasing habits. Millennials prefer renting and living in urban spaces, but only time will tell if their preferences change once more of them start families.
- Partner with Strong Private Equity Sponsors: Sponsors have market specific data, including demographic information, supply of particular types of real estate, and know and understand the niches within specific markets to ensure investments are fruitful.
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Founded in 1908, CIT (NYSE: CIT) is a financial holding company with more than $65 billion in assets. Its principal bank subsidiary, CIT Bank, N.A., (Member FDIC, Equal Housing Lender) has more than $30 billion of deposits and more than $40 billion of assets. It provides financing, leasing and advisory services principally to middle market companies across more than 30 industries primarily in North America, and equipment financing and leasing solutions to the transportation sector. It also offers products and services to consumers through its Internet bank franchise and a network of retail branches in Southern California, operating as OneWest Bank, a division of CIT Bank, N.A. cit.com