In the last three years, commercial property lending has continued to gain momentum and it is fundamentally strong, while still maintaining disciplined underwriting standards. The fundamentals of the real estate markets also are improving via the growth in the housing markets, construction, industrial production, and the further strengthening of the consumer psyche. The convergence of these factors leads us to an optimistic 2014 forecast for the real estate lending markets. Banks now trust the improved value of real estate again, which results in increased lending competition that should keep spreads tight and fuel strong performance up the risk curve to broader geographies and asset types this year. To learn more, visit: http://www.us.jll.com/capitalmarkets

1. Southern
California debt
and equity market

2. Southern California
debt and equity market
In 2013, the economic recovery solidified in
Southern California. Transaction volumes
increased, investors became more
aggressive and lenders more interested
in our markets. Life Company lenders had
good volume but the bigger news was that
banks are aggressively back in the market
and CMBS lenders more than doubled their
volume. Over the year, the increase in the
10-year treasury yield along with a steep
yield curve pushed borrowers to choose
floating-rate financing and/or shorter term
(5 year) fixed-rate execution. In 2014,
we expect continued improvement in the
supply/demand leasing fundamentals in
the major Southern California markets with
increased lender volumes across the board
(Life Companies, Banks, CMBS and Debt
Funds).
Jones Lang LaSalle

3. Southern California
debt and equity market
We saw a significant increase in CMBS
financings in Southern California in 2013.
Overall, CMBS volume nationally totaled
approximately $90 billion, which is double
2012 volume.
• MBS underwriting standards are much
C
more stringent than what we saw in 20052007 and lenders seem to be maintaining
their discipline. Average leverage is 65-70
percent given our low cap-rate markets
that put pressure on in-place debt yields.
• nvestors looking for higher leverage and/
I
or those buying non-trophy properties are
more likely to use CMBS financing.
Jones Lang LaSalle

4. Southern California
debt and equity market
CMBS loans provide higher loan proceeds
and liquidity for non-trophy properties with
solid occupancy and operating histories.
However, they don’t size well for nonstabilized properties and additional funding
is problematic. Non-responsive servicing
agents are a concern for many potential
CMBS borrowers.
There is currently a healthy amount of capital
for real estate investment at all levels of the
capital stack with, perhaps, more capital
than opportunities. As a result, lenders
and investors are becoming increasingly
competitive thereby putting pressure
on spreads and testing underwriting
assumptions.
As the economic recovery continues in
2014, expect a continued strong market for
real estate financing.
Jones Lang LaSalle

5. Southern California debt
and equity market
2014 Trends: multi-family development
losing some steam, hotels getting closer to
equilibrium, new construction of industrial,
office beginning to rebound, retail slow to
recover but could be the next opportunity.
Southern California, particularly Los
Angeles, always attracts international
investors given the size and diversity of our
markets and population. Hotels, apartments
and trophy office seem to generate the most
interest from the international investment
community.
Jones Lang LaSalle

6. Chris Casey
Managing Director
Jones Lang LaSalle’s Capital Markets
Chris.Casey@am.jll.com
+1 213 239 6332
Download the complete report
Debt and equity availability update:
The guide to financial commercial real estate
Jones Lang LaSalle