Published on February 27, 2014
Thoughts On: 2014 Commercial Financing Trends CIT Corporate Finance executives share their insights on the challenges and opportunities ahead for middle market companies in 2014. 2014 Restaurant Trends Bob Bielinski Managing Director, CIT Corporate Finance, Retail and Restaurants The restaurant industry turned in a solid year in 2013 despite resumption of the full payroll tax, which limited consumers’ discretionary funds, and a government shutdown that tested their confidence. Chains that target higherincome consumers performed better than their mass-market rivals as the uneven economic recovery continued. Putting the headwinds of 2013 behind them, restaurant operators are optimistic about sales and profits in 2014. Restaurant industry trends to watch in 2014 include: Bob Bielinski Improved economic data, including resilient “Improved economic data, consumer spending, rising home prices including resilient consumer and continued job creation, suggest sales spending, rising home prices should increase in 2014. On the cost side, and continued job creation, a record corn crop has eased commodity suggest sales should price concerns, although beef prices could increase in 2014.” remain an issue and labor costs could rise - Bob Bielinski with increases in the minimum wage. The most notable growth will continue to come from fast casual brands, which are taking market share. Chipotle, Panera, Five Guys and Jimmy John’s have been among the fastest-growing chains in recent years, and Noodles & Company and Potbelly Sandwich Works went public in 2013 in anticipation of continued growth. In addition, a number of emerging brands have plans to accelerate their new unit development. The current favorable lending environment will continue into 2014. Large and middle market restaurant companies, as well as franchisees of top-tier brands, will have ready access to capital for acquisitions, remodels and/or new builds. Access to debt financing should continue to improve for smaller companies, but less well-known brands could still find it challenging. – Page 1 –
Thoughts On: 2014 Commercial Financing Trends 2014 Commercial Real Estate Trends Matthew Galligan President, CIT Real Estate Finance In U.S. commercial real estate, 2013 saw both coasts outperform the middle part of the country. The New York metropolitan area was the strongest region, with the condominium market a favorite among foreign investors. Los Angeles, San Francisco and the Boston-Washington corridor also performed well, as they continue to provide important trade links with Asia and Europe. 2013 also saw the reemergence of lending from large banks, which provided the commercial real estate market with much-needed additional liquidity. Commercial real estate industry trends in 2014 are likely to include: Matthew Galligan Low interest rates, driven by the liquidity “As investors search for provided by the Federal Reserve, have returns in a low-interest-rate resulted in increasing property values. environment, where bonds In a continuation of recent trends, longare out of favor, and bargains term mortgage rates currently start in the are getting harder to find in 5% range for class-A product, which is the stock market, real estate unprecedented over the last 50 years. is back in vogue.” The flow of abundant investment dollars - Matthew Galligan into the sector from banks, insurance companies, commercial mortgage backed securities (CMBS) and foreign investors have fueled the sale and refinancing of properties during a recent wave of maturities in the CMBS market. This has helped mitigate any loss in value for properties financed at the height of the market in 2005 and 2007. As investors search for returns in a low-interest-rate environment, where bonds are out of favor, and bargains are getting harder to find in the stock market, real estate is back in vogue. Facing a still-uncertain market outlook, many investors are choosing to put their dollars in hard assets, such as commercial real estate. They can lock in rates for five to 10 years and expect to watch their rents increase over that time, helping to offset an anticipated rise in interest rates and adding value to what they feel is a more secure investment. – Page 2 –
Thoughts On: 2014 Commercial Financing Trends 2014 Healthcare Trends Steve Warden President, CIT Corporate Finance, Healthcare In 2013, healthcare companies delivered strong performances and received healthy capital investments, despite a decline in middle market healthcare M&A activity. While healthcare executives had concerns about the implementation of the Affordable Care Act and the impact of regulations, they continued to expect growth and to invest in their businesses, including in IT and facilities. Looking ahead to 2014, key trends in healthcare are likely to include: Steve Warden “Healthcare companies that Healthcare companies that are focused on are focused on growth and growth and margin expansion are going margin expansion are going to see increasing pressure to evolve from to see increasing pressure to “fee for service” models to “fee for value” evolve from ‘fee for service’ models with an emphasis on quality, models to ‘fee for value’ low-cost outcomes. Better companies will business models with an thrive while weaker companies will be emphasis on quality, lowacquired, with increasing consolidation in cost outcomes.” many sectors. - Steve Warden M&A in middle market healthcare is likely to pick up, after two consecutive years of decline. Consolidation pressure, and continuing Affordable Care Act implementation in 2014 giving better visibility into the future, will be the drivers. Strategic acquirers, both public and private-equity-backed companies, will be most active in the acquisition activity. Healthcare information technology will become more integral to companies’ business models, as well as deal activity. Many healthcare-focused private equity firms are employing their industry expertise to evaluate IT platforms and deal opportunities. To learn more about CIT Corporate Finance, visit cit.com/corporatefinance. Members of the press who have an interest in speaking with Mr. Bielinski, Mr. Galligan or Mr. Warden can contact Curt Ritter at Curt.Ritter@cit.com or Matt Klein at Matt.Klein@cit.com. For additional insights and perspectives from CIT executives on the middle market industries they support, visit cit.com/perspectives. – Page 3 –
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