5 Must-Reads for the CRE Industry [March 2020]

Posted by Alex Dimitroff on Apr 9, 2020 10:36:33 AM
Alex Dimitroff

Federal-Reserve-Bank-1.  Fed Announces Unlimited Bond Purchases, Will Buy Apartment CMBS

“In an extraordinary move to keep credit lines open, the Federal Reserve announced Monday morning that it would not put a cap on its purchases of Treasury and mortgage securities.” (GlobeStreet, 3/23)

What you need to know:
  • The Fed will also begin purchasing CMBS issued by government-sponsored entities (i.e. Fannie Mae, Freddie Mac) that will help stabilize multifamily properties.
  • The Fed also maintained the possibility of including private label CMBS and adding other asset classes in the future.

Read the full article here.

2.  COVID-19 Impacts on Commercial Real Estate: Rising Defaults and Losses in the Loan Sector

“The economic disruption caused by COVID-19 and the efforts to contain it will trigger a new cycle of rising defaults and losses in the commercial real estate lending sector. In the scenario presented below, the cumulative default rate across commercial mortgages overall will rise to 8%, up significantly from the current 0.4% default rate” (Trepp, 3/26)

What you need to know:

  • The loan data used for this analysis is comprised of 12,501 loans with an aggregate outstanding balance of $77.5 billion. The loans were originated and held on the balance sheet by banks, ranging from small community to large institutional ones.
  • The virus will most severely and immediately impact the hospitality sector, with a cumulative default rate approaching 35%.

Download the full Trepp Report here.

3.  Coronavirus Raises Commercial Real Estate Uncertainty

“Marcus & Millichap’s Coronavirus Outbreak: Implications for Real Estate report notes the U.S. economy is well-positioned to withstand shocks to the system from the coronavirus citing “sturdy job creation and growth drivers.”It states real estate supply and demand is generally in balance and should support stable occupancy and a steady outlook.” (Commercial Property Executive, 3/11)

What you need to know:

  • Marcus & Millichap report that real estate, typically viewed as a long-term investment, offers investors less volatility than most other investments.
  • The report notes that construction costs could surge as contractors are likely to be forced to use more expensive American steel rather than importing from China.

Subscribe to access the full Marcus & Millichap Report here.

4.  Mortgage Bankers Ask SEC to Save Them From Margin Call Surge

“Mortgage bankers are sounding alarms that the Federal Reserve’s emergency purchases of bonds tied to home loans are unintentionally putting their industry at risk by triggering a flood of margin calls on hedges lenders have entered into to protect themselves from losses.” (Bloomberg)

What you need to know:

  • The Mortgage Bankers Association urged the U.S. Securities and Exchange Commission to demand securities firms not to escalate margin calls to “destabilizing levels”.
  • Short-term hedge positions of shorting mortgage-backed securities when issuing new loans have resulted in considerable losses for CRE lenders. Their financing providers are requiring considerable cash liquidity as future collateral.

Read the full article here.

5.  COVID-19 Creating Uptick in Distressed Properties

“Both lenders and borrowers in the commercial real estate realm are turning to their legal advisors for more information on what their rights are, what precautions need to be taken and what resources are available to them as the industry deals with the fallout of the coronavirus.” (Mortgage Professional America)

What you need to know:

  • The industry is experiencing slowdowns across all asset classes, most noticeable in hospitality and retail.
  • Bridge lenders have an especially important role to play in this current economic scenario as many industry sector loans are due this year and will likely need to be refinanced.

Read the full article here.

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Alex Dimitroff
Written by Alex Dimitroff

As Financial Analyst, Alex supports RRA Capital's senior managers in property underwriting, loan closing, and fund administration. Alex is a CFA Level I candidate and a recent Finance graduate from Barrett, The Honors College at Arizona State University.