CRE Thought Leadership

1.  Pandemic Seen Creating Risk of Slower Commercial Real Estate Lending

“As 2020 nears its end, the pandemic is disrupting the origination and payment of commercial property loans even as borrowing rates boost interest in financing. The level of commercial and multifamily loans outstanding mounted all year as investors and owners sought to take advantage of historically low interest rates. At the same time, borrowers’ ability to repay outstanding loans shows further signs of stress.” (CoStar – Subscription Required, 12/23)

What you need to know:

• The amount of mortgage debt backed by CRE increased for the 33^rd straight quarter. Despite a significant decrease in acquisition funding, loan refinancings, particularly from government-sponsored entities, like Fannie Mae and Freddie Mac, helped raise total outstanding mortgage debt.
• The balance of delinquent commercial mortgages increased for the first time in three months in November, where delinquencies had been decreasing considerably from the double-digit-percentage levels throughout the summer. The combination of historically low interest rates and rising delinquencies coming into the new year combine for a mixed 2021 outlook.

Read the full article here.

1. Commercial/Multifamily Borrowing Falls in Q3

“The COVID-19 pandemic continues to impact new originations of commercial and multifamily mortgages. Compared to last year’s third quarter, commercial and multifamily originations were 47 percent lower, according to the Mortgage Bankers Association’s (MBA) Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations.” (Commercial Property Executive, 11/20)


What you need to know:

• Every major property type recorded a year-over-year decline, however, originations did increase 12% compared to the second quarter of 2020. According to MBA’s CREF Loan Performance Survey, commercial and multifamily mortgage performance improved in October.
• The third quarter saw a 94% year-over-year decrease in the dollar volume of loans for hotel properties, an 83% decrease for retail properties, a 58% decrease for office properties, a 31% decrease in multifamily properties, and a 23% decrease for industrial property loan originations.

Read the full article here.

1. Pricing Disconnect Weighs on Commercial Real Estate Investment Activity, CBRE Survey Finds

“The CBRE survey found that 61% of buyers are looking for discounts from pre-pandemic prices and only 9% of sellers willing to offer such discounts. Among buyers looking for discounts, nearly three-quarters were for office or retail properties. For suburban office, 95% of investors were looking for discounts, with no sellers willing to reduce their price.” (CBRE, 10/8)

What you need to know:

• Two-thirds of respondents stated they are adopting more conservative rental income assumptions than practiced in Q1 2020. Around half of those with unchanged underwriting assumptions are industrial-focused respondents.

• Cap rates for Class A properties (as of August 2020) remained relatively unchanged from rates at the end of 2019. The largest portion of metro markets reported flat cap rates, with other markets reporting nominal increases or decreases between 25-50 basis points.

Read the full article here.
Access the full survey here.

Amid the COVID-19 pandemic, almost every aspect of our lives--both work and social--changed in the blink of an eye. And companies now face a question that would have been inconceivable a year ago: do you really need an office?

Office space will forever be different after this pandemic and must adapt to meet the needs of the new reality of in-person collaboration. From changing work habits to rethinking the needs that office spaces will serve, offices will fill the gap that technology cannot in what will become a blended work-from-home dynamic. 

1.  US No Longer the Global Leader for CRE Investment

“In normal periods the U.S. is the largest, most liquid region for commercial real estate deal activity worldwide. In the second quarter, however, Europe surpassed the U.S. as a hub for investment. Trends into July are not looking favorable for the U.S.” (Real Capital Analytics, 8/31)

Discover the similarities and differences between these two commercial financing scenarios.

In the world of commercial real estate finance, many people use the terms "bridge lending" and "hard money lending" interchangeably. However, there are differences between the two types of financing and those differences can have a major impact on the way your loan is structured and how the approval process works.

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

“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)

1.  Commercial Real Estate Sales Fall 24% to $39.1 Billion

“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)

COVID-19 has significantly impacted the global economy as countries took sweeping measures to combat the spread of the virus. Halts in production, logistics activity, and consumer demand have had outsize effects on the globally intertwined supply chains many companies have built. Zencargo, a logistics startup, predicts supply shocks will generate $700 million in losses for the U.S. retail industry alone in the period from March 9 to April 20. This has led many supply chain experts to formulate risk mitigation strategies accounting for a variety of factors from labor costs, to capital investments. Many companies had one pain point in common: high supply chain concentrations in China. The effects of production halts are still being felt across many sectors. It is likely this crisis will force companies to assess the risk of reliance on one source for so many inputs and finished goods. One potential effect is the increased buildup of manufacturing and distribution capacity in the United States. A large-scale shift to domestic buildup has important real estate implications, particularly for industrial properties. From modifications to existing properties to entirely new development of custom facilities, the new demand could represent a strong opportunity to generate returns for investors that can lead and respond to these changes.

The COVID-19 crisis has brought significant stress to the commercial real estate financing market resulting not only from the obvious effects of putting the U.S. economy on hold, but also because commercial real estate and social distancing don’t mix.

The inevitable result will be missed rent, forbearance, and potential defaults by tenants. Landlords will need to accept this and work with tenants or risk sending tenants into bankruptcy. This will create unoccupied spaces in their buildings and destroy relationships with otherwise good tenants.

When crises hit, the biggest challenge in underwriting commercial real estate is in sorting out which issues are brief interruptions, and which will have long-term impacts on value (i.e.  understanding the difference between a suspension of the rules and a changing of the rules). For example: