But one thing that is absolutely true is that the CRE recovery has been geographically lopsided, and made both winners and losers, some of whose fortunes will be cemented as the last vestiges of pre-crisis debt clear the system.

Looking back on 2016, last year could have been much worse. Brexit, the U.S. presidential election outcome and the economic slowdown in China could have each cast a gloomy shadow on the market, and all together could have created a storm, but overall the year was less volatile than it could have been, and ended with a U.S. economy that continues to grow, a relatively balanced though cautious world economy and a stable commercial real estate market.

Looking ahead, the most recent Mortgage Bankers Association Originator Survey responses indicate that U.S. commercial and multifamily mortgage lending is expected to increase this year as lenders’ appetites to place new loans and borrowers’ appetites to borrow remain strong. According to the MBA:

• 63 percent of respondents expect originations to increase. 26 percent expect a 5 percent or more increase, and half expect their own firms’ originations to increase by 5 percent or more
• 77 percent expect lenders’ 2017 appetites to be strong or very strong
• 69 percent expect borrowers’ appetites to be strong or very strong through 2017
• 85 percent say they expect their own firms’ appetite to be strong or very strong this year
• Interest rates and returns are both expected to increase a bit in 2017 – indeed long anticipated rate increases have finally begun to occur, and will likely continue
• Loan risk is expected to increase slightly as competition for loans begins to somewhat erode underwriting discipline
• A majority expect potential regulatory and legislative changes to be positive for the market
• Among the top reasons cited for positive impacts were potential changes to Dodd-Frank, lightening regulation by the administration market-resolution of CMBS risk retention, and a more positive economic climate
• Among reasons cited for negative impacts were uncertainties that could be caused by changing rules. However, in many ways the ultimate impact is difficult to predict

And a lot of what 2017 looks like depends on where you are. Since the financial crisis, overall CRE values have recovered handsomely, and are now 22.3 percent higher than they were during their pre-recession peaks. However, that was driven by the multifamily sector and by properties in major markets. Apartment values, for instance, are up by 50.8 percent over pre-recession levels, blowing away all other property types, according to Real Capital Analytics. Meanwhile, the broader measure of CRE values in major markets is up 38.7 percent, while in non-major markets they are up by only 8.4 percent.

Primary markets are beginning to look frothy to many, particularly gateway markets. Many secondary markets have developed their own allure, depending on product type. Manhattan skyscraper values have surged by 50 percent above their 2008 peak, but at the same time, prices for suburban office buildings still languish at 4.8 percent below.  Multifamily should continue to outperform, based in major part on previously delayed household formation.  Retail continues to underperform, particularly older malls and properties without a distinct social purpose -more on this in a subsequent post.  Well-located warehouse and industrial are relatively attractive.

With rising interest rates, CRE borrowers outside of major metro areas will begin to feel the pinch as they attempt to secure financing, particularly refinancing of the last remaining, maturing and generally aggressively underwritten CMBS legacy loans of the 2007-2008 vintage.  Favorable opportunities will present themselves to liquid investors.

On a positive note across markets, the current recovery is not a debt-fueled one. There has been a reduction in the availability of construction funding, and a lack of a bullish run CRE. Low Treasury rates, relatively tight bond spreads and rebounding property values have driven market liquidity, allowing many of the sins from the heady days of 2006 and 2007 to be forgiven.

And for the moment both borrowers and lenders appear to be more disciplined, so while losses are expected to rise in the near future, they aren’t expected to rise dramatically, absent a “black swan” event.

All the same, there are some risks, such as geopolitical risk, which pose a great “unknown.” There is a lot of “bipolar” behavior in the market, and the wise should expect the unexpected. We may see good things on the inflation and growth side, but havoc could occur due to geopolitics. Recession in the next three or four years is possible, and we all know that CRE is cyclical. So while there is cause for cautious optimism in CRE, as usual the key to thriving in the next few years is the same as it’s always been: Expect the unexpected. Liquidity will rule.

In the coming weeks we will release additional reports from these two conferences, including: (i) the trouble with retail; (ii) exploding technology and its effect on CRE; and (iii) the broad industry impact of the looming CMBS maturity wall and origination challenges.