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Capital Alert

Optimism Rises on Vaccines, Consumer Spending

February 19, 2021

Optimism Rises on Vaccines, Consumer Spending
February 19, 2021

Optimism Rises on Vaccines, Consumer Spending

A wide range of capital sources tell us they are feeling more bullish about the outlook for 2021. Optimism is growing, despite higher jobless claims this week, as vaccine supply to states increased by more than 20 percent to 13.5 million doses. President Biden predicted vaccines will be available to every American by the end of July.

Meanwhile, retail sales surged 5.3 percent in January, surpassing expectations, as consumers rushed to spend $600 million in direct benefits that were part of the second stimulus bill approved by Congress in late December. Overall, retail sales were 7.4 percent higher than in January 2020. With the White House and Democrats pushing for a third, $1.9 trillion stimulus, economists have begun raising their expectations for U.S. growth. The incredibly bullish Atlanta Fed’s GDPNow model forecast first-quarter growth of 9.5 percent on a seasonally adjusted basis, up from 4.5 percent the previous week.

The recovery should also get a boost from $2 trillion in pent-up savings accumulated during a year of lockdowns, putting upward pressure on inflation. The yield on the 10-Year Treasury is hovering around 1.30, up four-fold from its all-time low of 0.318 last March.

Commercial real estate lending is gaining traction, with some institutions increasing allocations to the asset class, and others expanding to fast-growing metros outside their traditional geographies

Commercial real estate lending is gaining traction, with some institutions increasing allocations and others expanding to fast-growing metros outside their traditional geographies. We expect to see a steady stream of originations in the first half, with momentum accelerating sometime in the third quarter. Underwriting remains conservative, with higher debt coverage and lower loan-to-value ratios, and lenders closely scrutinizing borrowers, tenants and leases.

The office sector continues to face challenges with tens of millions of employees working from home. Salesforce, the anchor tenant in the 61-story San Francisco tower that bears its name, last week announced that employees can work from anywhere after the pandemic. The firm, which has 54,000 workers, is the largest private employer in San Francisco. Salesforce told The Wall Street Journal that it will reduce its real estate footprint and redesign space to be more collaborative.

On a positive note, that internal survey showed 80 percent of Salesforce employees still want some connection to the office. To increase its appeal, commercial real estate owners and investors are deploying technology to make spaces cleaner and more cost-efficient. A survey by Deloitte found 32 percent of North American respondents have started redefining business processes, job roles, and skill requirements to embed the use of technology and tools, with owners planning to cut costs by 20 percent on average. Meanwhile, the exodus from urban centers is putting pressure on the multifamily for-sale market, with investors reportedly seeking to purchase Manhattan luxury condominiums in bulk at steep discounts.

The economic effects of Covid-19 continue to reverberate across all asset classes and geographies. Given the uncertain outlook, owners and investors may want to reach out to an MMCC advisor, who can provide smart strategies and access to the widest possible network of capital sources to manage through the evolving commercial real estate landscape.
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