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Capital Alert

New Administration Vows to ‘Act Big’ to Boost Economic Recovery

January 22, 2021

January 22, 2021

New Administration Vows to ‘Act Big’ to Boost Economic Recovery

With inaugural festivities concluded, President Biden and his administration must now tackle the enormous economic toll wrought by the coronavirus pandemic. Last week Biden proposed a $1.9 trillion stimulus package that would support individuals, business and local governments, as well as a swifter vaccine rollout. Treasury Secretary nominee Janet Yellen said in Senate testimony that the president understands the plan would impact the burgeoning U.S. debt. “But right now, with interest rates at historic lows, the smartest thing we can do is act big,” she said.

A resolution of the health crisis will be the cornerstone of economic recovery. Optimism is growing amid efforts by both government and business leaders to jump start the vaccine rollout, as well as with new treatments to protect vulnerable populations. Commercial real estate is likely to improve incrementally as employment rises, workers return to offices and travel resumes.

But serious headwinds remain. The Centers for Disease Control (CDC) this week extended eviction moratoriums through the end of March; while New York state already extended its policy until May 1. Smaller landlords in particular say they have been pushed to the brink. Non-essential retail and hospitality have been devastated by COVID-19 -- an estimated one billion hotel rooms went unsold in 2020, and more than 100,000 restaurants had closed by September. Office vacancies have surged amid waning demand and rising supply from both new developments and sublease space.

"With interest rates at historic lows, the smartest thing we can do is act big."
– Janet Yellen, Treasury Secretary Nominee

On the bright side, we could see recovery accelerate as pent-up demand unleashes an explosion of consumer spending. Some publicly traded real estate firms appear bullish on the outlook and have begun repurchasing their own stock. Private equity is ready to deploy more than $200 billion in capital for distressed assets, but with the vaccine providing a visible finish line to the health crisis, some suggest there may be fewer fire sales than originally anticipated.

Adaptive reuse will be the watchword for 2021. But so far, conversations aren’t proving to be easy. Land use and zoning modifications will have to be part of the solution. States like New York, for example, are weighing measures to make residential conversions easier to accomplish. Meanwhile, as leasing gets more creative, watch for lenders to respond in kind with creative analysis to determine how those agreements can be structured to support mortgage finance.

Interest rates are likely to remain quite low through at least 2022 and possibly longer, with expansive monetary policy giving confidence to the capital markets. Cap rates remain stable and commercial real estate continues to be a compelling long-term investment relative to other alternatives. In 2021, lenders will still be closely examining rent rolls and doing deeper due diligence on tenants.

As recovery accelerates, the financing landscape will remain extremely fluid and dynamic. Please connect with an MMCC Capital Advisor for real-time guidance, access to the widest network of lenders and the broadest range of capital solutions for your commercial real estate needs.

A resolution of the health crisis will be the cornerstone of economic recovery. Optimism is growing amid efforts by both government and business leaders to jump start the vaccine rollout, as well as with new treatments to protect vulnerable populations. Commercial real estate is likely to improve incrementally as employment rises, workers return to offices and travel resumes.

But serious headwinds remain. The Centers for Disease Control (CDC) this week extended eviction moratoriums through the end of March; while New York state already extended its policy until May 1. Smaller landlords in particular say they have been pushed to the brink. Non-essential retail and hospitality have been devastated by COVID-19 -- an estimated one billion hotel rooms went unsold in 2020, and more than 100,000 restaurants had closed by September. Office vacancies have surged amid waning demand and rising supply from both new developments and sublease space.

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