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

Posted by Alex Dimitroff on Jul 31, 2020 3:19:52 PM
Alex Dimitroff

1.  Lending Could Fall Almost 60% This Year, MBA Forecasts

pixasquare-700115-unsplash“Bankers expect commercial real estate loan originations to drop 59% in 2020 because of the economic fallout from the coronavirus pandemic. Lenders are forecast to complete $248 billion of loans backed by income-producing properties — down from 2019's record volume of $601 billion, according to a new projection by the Mortgage Bankers Association.” (CoStar – subscription required, 7/20)

What you need to know:

  • Lending in the multifamily sector is expected to perform better than other commercial property types, with multifamily loans making up 86% of this year’s lending activity, up from 60% in 2019. The Mortgage Bankers Association (“MBA”) still estimates that multifamily lending will decline 42% to $213 billion, down from last year's record of $364 billion.
  • Despite major economic peril and fierce unemployment challenges, the National Multifamily Housing Council found that over 93% of apartment households paid rent in July. The MBA estimates that this can be attributed to the federal stimulus checks, enhanced unemployment benefits ($600 extra per week), and eviction pauses.

Read the full article here. 

2.  Lenders Traverse the Coronavirus Tunnel

“Commercial real estate financing is more volatile now than at any time since the Great Recession due to the novel coronavirus pandemic. Still, there’s activity—and it involves lenders taking as much care as many of their potential customers.  (Commercial Observer, 7/14)

What you need to know:

  • When the virus first hit, there was a simultaneous pullback between many borrowers and lenders to halt new originations and examine their existing portfolios. As a result, total lending activity in 1Q2020 was down over 40% from 4Q2019.
  • In June, Fitch Ratings noted its largest uptick in CMBS delinquencies in the nearly 16 years the firm has been tracking such figures – an increase of 213 basis points, to a 3.59% percent share of all CMBS loans.

Read the full article here.

3.  Preliminary Data: CMBS Delinquency Rate Appears Poised for Drop in July

“With remittance data for July nearing its completion point, preliminary numbers indicate that the CMBS delinquency reading is set for a sizable decline. That comes one month after the Trepp Delinquency Rate came within two basis points of matching its all-time high. (Trepp, 7/23)

What you need to know:

  • Although the data can be inconclusive in regards to forbearances, it is apparent that the volume of loans that are reverting back to “current” status are outpacing those loans that are newly delinquent.
  • Approximately $1.2 billion in loans were moved from delinquent to “beyond grace period” and more than $8 billion in loans reverted to “current” status so far this month.

Read the full article here. 

4.  U.S. May Need Another 1 Billion Square Feet of Warehouse Space by 2025 as E-commerce Booms

“With online sales proliferating during the coronavirus pandemic, the U.S. is going to need more warehouses to store hoards of boxes and handle those orders. And so with more people clicking “buy” instead of venturing to the mall, demand for industrial real estate could reach an additional 1 billion square feet by 2025, according to a new report from JLL.   (CNBC, 7/9)

What you need to know:

  • JLL stated that prior to the COVID-19 crisis, about 35% of industrial leasing activity was e-commerce related but now states that as much as 50% of the leasing activity since is related to the online retail industry.
  • Prologis, a REIT that is Amazon’s largest landlord, has estimated that e-commerce firms require 1.2 million square feet of distribution space for every $1 billion in sales. Research firms are now estimating that e-commerce sales will grow to 18% of all retail sales by 2024, up from an expected 14.5% this year, with online sales surpassing $1 trillion for the first time.

Read the full article here.

5.  Hotels Hurry to Raise Cash as Federal Aid Could End

“Some hotel owners are faced with property sales at discounted prices and expensive financing now that federal aid is poised to expire. Larger hotel owners such as the publicly listed real-estate investment trusts have drawn down their credit lines and sold bonds, which will help tide them over a volatile recovery, said Robert Webster, vice chairman of CBRE Hotels.” (WSJ – subscription required, 7/28)

What you need to know:

  • Many smaller and private hotel owners are in relief talks with lenders and hoping for additional governmental assistance, which has helped prevent foreclosures to date. While the industry was seeming to recover, a recent rise in coronavirus cases led to a 56% decrease in revenue per available room (RevPAR) for the week of July 12-18 from the previous year.
  • Many hotel owners received federal assistance through the Paycheck Protection Program with many receiving interim mortgage deferrals for the past few months. The existing federal loan-application program, in which thousands of hotel business received loans of $150,000 or more, is set to expire on August 8th.

Read the full article here.

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Topics: Market Update, Investment

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.