A Look Back at 2014 and Forward to 2015: Enjoy the Good Times While They Last
This is the season when many of us reflect back on the past year and consider what the next 12 months may bring to our market, our companies and our clients. This year, taking stock is a mostly pleasant experience, since 2014 was a stellar year for investors and their advisors, and there’s no obvious reason why the good times shouldn’t extend through 2015.
Everything is relative, of course. As good as the market has been, challenges like intense competition and increased regulation haven’t made anyone’s job easy. Real estate investors, lenders and their advisors may be upbeat, but their excitement doesn’t exactly rival George Bailey’s at the end of “It’s a Wonderful Life.” In today’s business environment, “cautiously optimistic” may be as good as it gets.
Summer Street Advisors has seen the positive market trends reflected in our business, particularly in the types of transactions we’re handling on behalf of clients. A year ago, we were still helping some investors work out properties and non-performing loans, but in 2014, most of the remaining distressed-asset players migrated back to the “good back” side of the business. Structured finance deals, which disappeared during the Great Recession, are back in force. Hedge funds and other private equity players are moving up the risk spectrum, providing mezzanine loans and new construction financing.
This year, we’ve provided valuations and analytics for the creation of a new REIT; helped lenders establish construction financing lines of business; and advised clients on the best way to enter the increasingly crowded conduit space. Our expertise in structured finance transactions was in demand for the first time in several years. And we provided analytics for a proposed 3 million-square-foot development that has been on hold since 2007.
More and more, our clients are looking at deals they wouldn’t have considered two years ago. Second-tier U.S. markets, properties in Mexico, niche property types—everything is on the table now as capital sources chase viable properties rather than the other way around.
Will there be another down cycle? Yes, inevitably, but probably not in 2015. Even though the market is awash in capital, most sources so far have maintained discipline in their underwriting—even if a bubble were to begin soon it would take at least a couple of years to expand and burst. No one is predicting a sharp rise in interest rates in 2015, and user demand for every property type has been fairly strong.
Nevertheless, one strategic change we’re making at Summer Street is to pursue more work for government entities in 2015. Establishing a track record with HUD and other agencies over the next couple of years will help us maintain a steady book of business the next time the private sector goes into hiding. Diversifying risk is often a good strategy for investors, and it’s not a bad idea for consultants, either.
As this is our last blog post of the year, I’d like to extend thanks and good wishes to all our clients, colleagues, service providers and other readers. Here’s hoping your business thrives and your family is well in the new year.