Panelists at the Fabozzi commercial mortgage-backed securities conference last month predicted a bright future for most property types in the CMBS market going forward, noting that technological advances will add a whole new dimension of value-added service to hotel and retail properties.
While office properties were viewed as the most popular collateral for institutional investors this year, apartment markets, from a demand perspective, were rated second.
Retail, however, has not been quite as successful.
"The retail market has caused people a great deal of heartburn," said Will McIntosh, managing director of investment research at Prudential Real Estate Investors. "Consumers tend to be fickle, from a demand perspective."
Warehouse properties were said to be doing fine, with a stable supply and demand, though some markets were undersupplied. Vacancy rates are said to be stable, the speakers said.
According to panelists, hotels weakened slightly this year, due to oversupply and the fact that the hotel sector is a limited-service component of the market. "It will come back though," added McIntosh.
But surely the most widely discussed topic was recent technological advances and how they will affect the CMBS market and its investors in the long run.
"What will become more and more important is that hotels and multifamily properties have some kind of an Internet connection and broadband high-speed communication network," said Stephen L'Heureux, vice president of AEW Capital Management. "So, now, investors must look not only at what is in the building, but also at what is on top of it, in terms of the telecommunications."
In the future, hotels will want to be equipped with video-conferencing capabilities, sources say, so that business people can conduct meetings on the road. Additionally, investors will have to make doubly sure that their borrowers are Y2K compliant.
Already, some of the more savvy real estate investment trust players are providing high-speed communication lines to residents, L'Heureux said. Moreover, these are services that the U.S. government and IRS are now recognizing as good REIT income.
"In the near term, there is a strong market, but if there is a downturn, these types of technological opportunities will allow players to differentiate themselves from the competition," L'Heureux added. "It will undoubtedly change what kind of business is done, where it is done, and who is doing it." - AT