“The repeat sales of $39.1 billion for the first five months of 2020 fell 24.2% from the same time a year earlier. This is the first look at the year's commercial real estate pricing trends, calculated by using the price change from the pair of first and second sales of properties sold multiple times. The indices are based on 538 repeat sales in May and more than 227,324 since 1996.” (CoStar - subscription required, 6/25)
What you need to know:
- The deceleration in deal volume was seen across the size and building-quality spectrum. While volume in the first three months of 2020 held stable compared to last year, there was a swift drop in April and May. This is largely representative of increased caution among investors and difficulty in transacting deals in a lockdown.
- In the investment-grade segment, which reflects larger asset sales in major markets, repeat sales volume for the first five months of 2020 was down 25.1% year-over-year. The general commercial segment, reflective of smaller and secondary market property sales, was down 22.4% year-over-year.
“Commercial mortgage markets are in a period of price discovery, with certain lenders remaining active. Interest rate floors have become commonplace, while underwriting and property-type criteria are more stringent due to tenant credit, property cashflow and valuation concerns.” (CBRE)
- Banks accounted for 32.6% of total lending volume in Q1, up from 26% in Q4 2019. Alternative lenders, which include debt funds and REITs, were responsible for 30.3% of lending volume this quarter. This is down from over 40% in Q4 2019 but up from their 18% share from a year ago.
- Agency loan production totaled $24.2 billion in Q1, which was down from $30.3 billion in Q1 2019. CBRE’s Agency Pricing Index, which reflects 7-10 year fixed-mortgage permanent loans, averaged 3.73%. This was down 85 basis points from Q1 2019.
“The impact of the current events on the commercial real estate industry has been hotly debated, especially in what regards the effects of the ongoing pandemic and resulting social distancing rules that have caused a significant drop in demand for office spaces. The question is how deeply the industry will be affected by these changes in the long term.” (Forbes, 6/29)
What you need to know:
- An Increase In Underwriting Standards – There will be an increase in underwriting standards with a significant financial review and cash reserve requirements. “Reputation will be key”.
- Repurposing Assets Will Move the World Forward – When big box retail began to suffer, it was repurposed into self-storage in many cases. As the need for office space is expected to decrease, these vacancies will be repurposed into multifamily investments.
“U.S. retailers could announce between 20,000 and 25,000 closures in 2020, according to a tracking by Coresight Research, with 55% to 60% of those situated in America’s malls. That would also mark a record — which was previously the more than 9,300 locations in 2019.” (CNBC, 6/9)
What you need to know:
- In mid-March, the infancy of the coronavirus pandemic, Coresight estimated 15,000 store closures were to be announced by retailers in 2020. As of June 9th, Coresight had recorded a total of 4,005 retail store closures and expect 20,000-25,000 closures by year-end.
- A separate report by eMarketer is forecasting total retail sales in the U.S. to fall more than 10% in 2020, while also calling for e-commerce sales to rise 18% this year. Reported on June 16th, retail sales rose 17.7% in May, more than doubling the 8% forecast from Down Jones.
“The National Multifamily Housing Council (NMHC)’s Rent Payment Tracker found 92.2 percent of apartment households made a full or partial rent payment by June 20 in its survey of 11.4 million units of professionally managed apartment units across the country. (National Multifamily Housing Council)
- This 92.2% collection was the exact same finding from one year ago (through June 20, 2019) and is an increase from the 90.8% that had paid by May 20, 2020. This is a continuous uptick from April 2020, the first post-COVID collections data, which saw 89.2% of apartment households make a full or partial payment.
- Doug Bibby (NMHC’s President): “The early steps taken by lawmakers have proven critical to keeping many safely and securely housed. As we move forward and the economy begins to recover, it will be vitally important that lawmakers continue to support the nation’s renters and forestall even greater economic harm.”
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