Finding CRE opportunities in today’s chilly market – an expert's outlook

Dan Baker, EVP, Head of Commercial Mortgage Group, November 2022

<p>Finding CRE opportunities in today’s chilly market – an expert's outlook</p>

The dramatic increase in rates has really thrown a cold bucket of water on the market, but there is still guarded optimism. Learn why.

Think of the current economy as the ice bucket challenge, but one that gave no choice in participation.

In a year in which consumer spending declined and inflation and interest rates rose, the economy has had a chilling effect on commercial real estate activity. Dan Baker, executive vice president and head of commercial mortgages for KeyBank, one of the nation’s largest bank-based financial services companies, said property acquisitions have slowed dramatically.

“The last six months have been tough, and the dramatic increase in rates from a CRE perspective has really thrown a cold bucket of water on the market, which has really slowed down,” Baker said. “About 60% of what we do is acquisitions financing, and when you see a sudden spike in rates — and I've never seen a rise as fast in my entire career — it has your buyers and sellers running to the sidelines for a bit of a staredown.”

But even if many in the CRE world are sitting on the benches, Baker said reasons remain for guarded optimism.

Certain CRE classes, such as multifamily and industrial, remain strong. Meanwhile, the overall economy remains mostly sound, particularly when compared to the Great Recession of 2008.

“I have told many of my bankers that if this is as bad as it gets, we should feel very blessed,” Baker said. “2008-2009 was a great disruption to the market, but this time we're still getting business done. When you're on the lending side, we see people who have maturing loans and have to refinance. The rate they can get today isn’t that far off from the rate they got 10 years ago, so there's not as much sticker shock to them.”

With a 12-year bull market coming to an end, interest rates doubling in the past six months and continuing talk of a recession, Baker said it is important to maintain perspective.

He acknowledged the next six to 12 months are likely to be “a bit of a grind,” but Baker’s assessment of the economy is in line with recent statements from Fannie Mae. The mortgage giant said it expects any potential recession to be modest and to be followed by a period of easing monetary policy and a return to growth.

Fannie Mae credited a “relatively limited degree of labor market slack” for its optimism. Baker, too, is optimistic about CRE’s standing in the current economy, but for a different reason.

“I'm not anticipating a really hard landing, especially in the CRE space,” Baker said. “Part of that is based on the fact that there's so much institutional equity sitting on the sidelines waiting to be deployed. I don't think you're going to have a huge downturn in valuations because CRE is still a very popular product type within the institutional equity space.”

Among CRE classes, Baker said multifamily and industrial remain “hypercompetitive with a tremendous amount of borrowers and equity chasing transactions.”

“Multifamily occupancies are still very strong, while there is tremendous demand for industrial space,” he said. “Industrial is definitely the preferred product for institutional equity.”

On the other hand, the office market continues to struggle as many businesses rethink their need for space. 

“As I sit here on the 17th floor looking at downtown Chicago, I can see right through several buildings that are still empty,” he said. “Companies are downsizing their spaces, and it's very difficult to underwrite from a lender's perspective. I feel like we're in for some continued pain for a while on the office side.”

The situation is very different in affordable housing. Baker said KeyBank, the second-largest affordable housing lender in the country, is seeing unprecedented activity in the sector.

“We've seen a tremendous amount of institutional equity come into the affordable housing space for the first time,” he said. “What is really changing the dynamic is that a lot of big corporations are investing equity into the space, which historically was not the case. I also think there is still a tremendous amount of runway to go because everybody agrees we need more affordable housing."

With continuing volatility in the overall CRE space, Baker said a developer or owner’s relationship with its lender is more important than ever.

“In a market like this where there is a lot more volatility and a higher percentage of transactions that are falling apart at the last minute, it is important to have a pretty good finger on the pulse of where you can get debt and at what level you can get debt,” he said. “You need a good relationship with a bank that you can work with so that you can put together the debt and the equity at the level to make your acquisition work.”


To learn more

Reach out to your mortgage banker, connect with Dan Baker, or go to

This article is used with permission and was produced in collaboration between KeyBank and Studio B. Bisnow news staff was not involved in the production of this content. This is designed to provide general information only and is not comprehensive nor is it legal, accounting, or tax advice. All credit products are subject to collateral and/or credit approval, terms, conditions, and availability and subject to change. is a federally registered service mark of KeyCorp. All rights reserved. Banking products and services are offered by KeyBank N.A.

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