California investors seeking to deal in commercial real estate should be interested to learn that Morgan Stanley analysts believe price growth will be nonexistent through 2016. In February, real estate experts revealed their prediction that the old 5 percent growth forecast was unlikely to pan out due to a combination of factors.
Sinking property prices could decrease ratios between loans and property values and therefore lower the amount of leverage available to investors. Some Morgan Stanley analysts claim that although rising property incomes might offset such effects and help investors retain profitable holdings, an ongoing trend of reduced corporate revenues and the possibility of an economic recession make such increases unlikely.
The Morgan Stanley predictions revealed the potentially varied influences of different kinds of investment funding sources such as commercial mortgage-backed bonds, or CMBS. Although CMBS account for notably high levels of funding, an oil-price drop slowed their sale. Other factors that may impact the market included an interest rate hike by the Federal Reserve at the tail end of 2015. Some analysts expressed surprise at the prediction, which seems to run counter to the fact that commercial property values have been growing for years.
Commercial real estate investment doesn’t always go smoothly. Some transactions may require unique funding arrangements to pay for the ongoing development of properties and facilities. When market factors decrease the availability of funding in the middle of an unfinished commercial real estate transaction, disputes may arise between investors, developers and other parties that could require the need for legal assistance.