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Thoughts On: 2014 Commercial Financing TrendsCIT Corporate Finance executives share their insights on the challenges and opportunities ahead for middle market companies in 2014.

2014 Restaurant TrendsBob BielinskiManaging 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 higher-income 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:

Improved economic data, including resilient consumer spending, rising home prices and continued job creation, suggest sales should increase in 2014. On the cost side, a record corn crop has eased commodity price concerns, although beef prices could remain an issue and labor costs could rise 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.

“Improved economic data, including resilient consumer spending, rising home prices and continued job creation, suggest sales should increase in 2014.”

- Bob Bielinski

Bob Bielinski

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Thoughts On: 2014 Commercial Financing Trends2014 Commercial Real Estate TrendsMatthew GalliganPresident, 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:

Low interest rates, driven by the liquidity provided by the Federal Reserve, have resulted in increasing property values. In a continuation of recent trends, long-term mortgage rates currently start in the 5% range for class-A product, which is unprecedented over the last 50 years.

The flow of abundant investment dollars 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.

“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.”

- Matthew Galligan

Matthew Galligan

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Thoughts On: 2014 Commercial Financing Trends2014 Healthcare TrendsSteve WardenPresident, 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:

Healthcare companies that are focused on growth and margin expansion are going to see increasing pressure to evolve from “fee for service” models to “fee for value” models with an emphasis on quality, low-cost outcomes. Better companies will thrive while weaker companies will be acquired, with increasing consolidation in many sectors.

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.

“Healthcare companies that are focused on growth and margin expansion are going to see increasing pressure to evolve from ‘fee for service’ models to ‘fee for value’ business models with an emphasis on quality, low-cost outcomes.”

- Steve Warden

Steve Warden