August 14, 2020
Roughly four months after the coronavirus pandemic disrupted the U.S. economy, the capital markets have stabilized into a “new normal” and activity is slowly accelerating. We see more and more lenders edging back in, although no one would call it a borrowers’ market. Capital is available for owners and investors who have credible track records, cash in the bank, and high-quality assets with secure cash flows. Some borrowers have loans coming due and others, who spent the early days of the crisis engaging with tenants and shoring up their portfolios, are looking at the opportunity to refinance at remarkably attractive interest rates. In July, MMCC closed more than a half billion dollars in commercial real estate loans with 79 lenders.
But caution remains the byword as uncertainty and volatility abounds. Infection rates are ticking up, lockdowns are being renewed, and the U.S. is struggling through the sharpest economic contraction since World War II. Although July job gains surpassed expectations, nearly 12 million workers have lost their livelihoods since the pandemic began, and more than half of U.S. households have reported a loss of income, according to the latest Census Bureau survey. COVID-19 has decimated tax revenues: U.S. cities and municipalities are projecting a decline of $360 billion between 2020 and 2022. Meanwhile, Congress and the White House remain deadlocked over a new stimulus package at this writing.
Despite these headwinds, we are seeing a selective rise in activity among banks, credit unions, debt funds, life companies and CMBS, with more short-term bridge lending available. Historically low rates are creating more attractive debt/refinance options, and the strict underwriting criteria that characterized the market over the last 90 days is easing somewhat. While the expectation of debt service reserves is becoming more common by borrowers, many lenders have begun to reduce the scope and terms of that contingency. Finding non-recourse capital across asset classes and lenders (other than agency and the resurgent CMBS) is proving challenging. Fannie Mae and Freddie Mac have provided the true back stop to the market, with rates ranging from the 2.5 to 3.5 percent. Amid the volatility, lenders are scrutinizing the risk in each asset class, with single-tenant essential retail, high-quality industrial and self-storage assets in favor.
Multifamily has proven more resilient than initially expected, and there’s hope that the trend may continue after President Trump issued an executive order on August 8 providing an extra $300 a week in federal unemployment benefits. However, states must apply for the $44 billion in available funds, and it could take several weeks before the money reaches workers, the Wall Street Journal reported. If all 50 states participate, the program could run out of money in five to six weeks.
Though we’re not in a position to confirm news of a vaccine out of Russia, hope looms large for a health care solution that will lead to greater stability and an eventual economic rebound. Given rock-bottom interest rates, commercial real estate will continue to be an attractive long-term investment. Please connect with an MMCC Capital Advisor for real-time guidance and the broadest range of capital solutions for your borrowing needs.