State of the ESA Industry
While on vacation for the past two weeks I received a number of emails from clients asking for EDR's view into the state of the industry. Here is what we are seeing.
On a year-on-year basis, ESA transactions had been up by 3% through August. Then starting in September and running through October, things slowed down. For the past 6 weeks, the volume of ESA activity has declined by 14% compared to last year despite the fact that the total number of environmental consultants ordering from EDR has increased. So basically we're seeing fewer projects being performed by more firms. However, this is slightly deceptive and does not tell the entire story.
Nearly all of the transactional decline is coming from the CMBS sector of the market. Firms who specialize in portfolio securitization work for Wall Street are taking the entire hit right now and the situation is very similar to what we saw in 1998; the last time the CMBS market contracted. By contrast, the onesie-twosie balance sheet mortgage market continues to perform quite well and continues to show annual growth.
In 1998, the drivers for the CMBS decline were the Russian ruble crisis and overdevelopment in the commercial real estate market. Back then it took about one year for things to play out before volumes began to increase again. This time around, we don't have the problem with overdevelopment. Instead, the only driver seems to be the credit crunch which began in late summer. Based on conversations with firms who specialize in this area as well as with Wall Street firms, the general consensus is that the current slow down in portfolio work will not last as long. Many clients are reporting that they are already beginning bid on portfolio work again and expect to see some large projects come through in November and December.
As I mentioned in an earlier blog post, the current situation is being described not as a "real estate event" but instead as a "capital markets event". This comment is reflecting the fact that underlying commercial real estate fundamentals remain good so any decline in lending is the result of capital availability, upgraded underwriting standards and the ability for mortgages to be securitized.
Most of EDR's 6,000-plus clients do not work for Wall Street so they should not be seeing much of an impact in work volume. However, those few that do are clearly weathering a bit of a storm right now. Hopefully this period will pass relatively quickly.
On a year-on-year basis, ESA transactions had been up by 3% through August. Then starting in September and running through October, things slowed down. For the past 6 weeks, the volume of ESA activity has declined by 14% compared to last year despite the fact that the total number of environmental consultants ordering from EDR has increased. So basically we're seeing fewer projects being performed by more firms. However, this is slightly deceptive and does not tell the entire story.
Nearly all of the transactional decline is coming from the CMBS sector of the market. Firms who specialize in portfolio securitization work for Wall Street are taking the entire hit right now and the situation is very similar to what we saw in 1998; the last time the CMBS market contracted. By contrast, the onesie-twosie balance sheet mortgage market continues to perform quite well and continues to show annual growth.
In 1998, the drivers for the CMBS decline were the Russian ruble crisis and overdevelopment in the commercial real estate market. Back then it took about one year for things to play out before volumes began to increase again. This time around, we don't have the problem with overdevelopment. Instead, the only driver seems to be the credit crunch which began in late summer. Based on conversations with firms who specialize in this area as well as with Wall Street firms, the general consensus is that the current slow down in portfolio work will not last as long. Many clients are reporting that they are already beginning bid on portfolio work again and expect to see some large projects come through in November and December.
As I mentioned in an earlier blog post, the current situation is being described not as a "real estate event" but instead as a "capital markets event". This comment is reflecting the fact that underlying commercial real estate fundamentals remain good so any decline in lending is the result of capital availability, upgraded underwriting standards and the ability for mortgages to be securitized.
Most of EDR's 6,000-plus clients do not work for Wall Street so they should not be seeing much of an impact in work volume. However, those few that do are clearly weathering a bit of a storm right now. Hopefully this period will pass relatively quickly.
Labels: CMBS
posted by Rob Barber at
10/18/2007 05:40:00 AM
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