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NREI Research Series

Retail Real Estate Trends 2017, Part 4: Capital Sources Shying Away

Capital may be drying up for retail properties.

There is some sense in the market that both debt and equity capital is becoming less available for retail properties than 12 months ago.

On the equity side, 31.7 percent of respondents answered that it is less available while 36.5 percent said debt was less available. A plurality (40.5 percent, equity; 38.4 percent debt), said the availability was unchanged. Only 18.1 percent said that equity is more widely available and just 14.5 percent responded that debt is more widely available.

In terms of specific financing aspects, respondents, not surprisingly, expect interest rates to rise. Overall, 69.7 percent answered that they expected rates to go up compared with 30.0 percent that said they would stay flat and only 2.3 percent that said they would decrease.

More than half of respondents (55.1 percent) also expect an increase in the so-called risk premium, the spread between the 10-year Treasury rates and retail cap rates. When it comes to loan-to-value (LTV) ratios and debt service coverage ratios, most respondents (55.4 percent and 53.2 percent, respectively) expect things to remain the same. Only 20.1 percent expect LTV ratios to rise and 24.4 percent expect them to fall. For debt service coverage ratios, nearly two-fifths of respondents (38.5 percent) expect an increase, while 8.4 percent expect them to decrease.

Research Methodology: In July, NREI emailed commercial real estate professionals requesting participation in an online survey about retail real estate. Overall, the survey received 410 responses, half of whom identified as Owner/Partner/President/Chairman/CEO/CFO. In addition, 42 percent of respondents operate in the East, 42 percent in the South, 45 percent in the West and 36 percent in the Midwest. (Respondents could select all regions that applied.)

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