Building Owners Enjoyed 2015 Property NOI Growth at Highest Levels Since 2007Building Owners Enjoyed 2015 Property NOI Growth at Highest Levels Since 2007

Property Profits Highest Among Hotel, Self-Storage and Multifamily; Retail Sees Lower Profits

For commercial property owners, 2015 was a very good year. According to early analysis of securitized loan results through February of 2016, the commercial properties backing the loans posted strong net operating income (NOI) growth, increasing 3.8% on average in 2015.

Average NOI for commercial property backing CMBS loans showed a big jump in 2015, compared with 2.66% in 2014 and 2.64% in 2013, according to analysis by Wells Fargo Securities.

The Wells Fargo analysis is based on NOIs reported for more than 6,000 loans in conduit CMBS transactions.

While Wells Fargo cautioned the results are preliminary, if the growth rate stays near the current level, it would mark the highest change since the financial crisis, surpassing the 3.4% annual NOI average increase in 2012.

Hotel, self-storage and multifamily properties backing CMBS loans were the lead profit-centers, driving average NOI increases of 8.6%, 8.5% and 7%, respectively.

Multifamily Also Fares Well

In a separate analysis, CoStar Group took an early look at the full year 2015 NOIs reported for multifamily loans securitized by Freddie Mac and Fannie Mae.

Fannie Mae DUS loans backing more than 98,000 apartment units reported 2015 NOIs that were 5.22% higher than 2014. NOI was averaging about $6,870/unit in 2015 vs. $6,529/unit in 2014. NOI decreases were reported on 27% of the units last year.

Freddie Mac loans backing more than 70,000 apartment units reported 2015 NOIs that were 4.72% higher than 2014. Freddie reported NOI was averaging about $11,822/unit in 2015 vs. $11,288/unit in 2014. NOI decreases were reported on just 11% of the units last year.

In conduit CMBS deals, office properties were showing a modest-but-improved NOI average growth rate for 2015 of 2.8%, nearly triple the less-than-1% average annual NOI growth rate in 2014.

Industrial properties too were posting a modest-but-improved growth rate of 3.7% up from 2.5%, according to Wells Fargo.

After spiking in 2014, NOI growth appears to be slowing for hotel properties posting an average of 8.6% in annual NOI growth, down from the 10.9% growth rate seen in 2014, according to Wells Fargo Securities.

The only other major property type to see its average NOI growth slow was retail, checking in with an average increase of 1.7% in 2015, compared with 1.9% for 2014.

Properties backing loans made during 2006 and 2007 — the last peak year vintages — are showing NOI growth of 5.1% and 3.1% on average in 2015, Wells Fargo noted.

The NOI growth is a welcome sign and may help to refinance loans reaching maturity, the banking group said.

The decent NOI growth in the post-crisis vintages (2010-2013) also should continue to keep term defaults low, adding to the cushion already provided by historically high underwritten debt service coverage ratios, Wells Fargo noted.

Source: CoStar Mark Heschmeyer March 23, 2016

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