Unrelated but material changes in the composition of both debt and equity capital flows are evident in an analysis of H1’17 U.S. 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.
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.