Notwithstanding the severe job losses and declining economy that resulted in form the March stay-at-home orders across the nation, actions by the federal government have supported the continued operation of key capital markets—albeit with reduced deal volume as compared to the opening months of 2020. This is especially true in the New York commercial mortgages sector, as data compiled by the Mortgage Bankers Association indicates that in August 2020 there was relatively little change in overall commercial and multifamily real estate delinquency rates and an overall decline in borrower inquiries and requests. These are positive market indicators that suggest the industry is on the road to recovery.
Capital markets have seen an uptick in activity due to the low-interest rates and favourable spreads, with lenders engaging with their asset management clients and pursuing numerous new originations. Collectively, the majority of asset classes posted marked improvement as compared to their subpar performance in April and May, where the after-effects of the initial economic shutdown were still fresh, and the industry was struggling to adapt. While liquidity in the debt markets was initially a concern in these early stages, that issue has begun to subside thanks in large part to an injection of capital from federal entities in the form of stimulus packages. Core properties with long median lease terms are attracting the greatest amount of private capital. Assets that were under contract prior to the stay-at-home orders and economic turbulence have, for the most part, continued to close at their pre-COVID-19 listing prices, although both deal volume and velocity have declined as expected.
Hotel and retail properties continue to exhibit the greatest financial stress; however, the delinquency rate for lodging properties fell in August for the second month in a row, while the delinquency rate for retail properties spiked at a new high since the onset of the pandemic. MBA data indicated that the share of lodging property loan balances that were non-current fell to 23.4% in August (from 26.2% in July and 27.3% in June). For retail property loans, delinquencies rose to 15.0% in August (from 13.9% in July and 14.7% in June).
While the office commercial mortgages sector has been less active than multifamily, many banks continue to lend to office borrowers. Although the recent transition to work-at-home positions by the majority of companies might have signalled trouble for this sector, office tenants typically have long-term leases that support underwriting. There is still some degree of uncertainty regarding the post-pandemic office market. Even though vacancies will definitely increase in the next year, there is not a widespread consensus amongst real estate professionals as to whether there will be a long-term drop in office occupancy. In the short term, the demand for increased office space in order to comply with social distancing protocol in the workplace will likely offsetthe decline in office space tenants due to the increased adoption of remote working. a long-term perspective, there is a consensus that companies require the office to engender a shared culture, in-person collaboration and efficiency—which would support that the office sector will eventually recover to pre-COVID 19 volume.
For promising projects that potential borrowers can convincingly demonstrate to lenders will produce a healthy return on investment, loan servicing is readily accessible and interest rates and spreads are ideally priced from an investment perspective. Lenders continue to actively lend on lower-risk assets, such as industrial and multifamily projects. In these sectors, borrowers can actually secure historically low-interest rates. There continues to be substantial capital for all other asset classes, bringing increased competition between lenders and unprecedent low rates for borrowers. This is apparent in the performance of industrial and development projects, which has remained robust thanks to ample cash flows for underwriting.
Express Capital Financing is a direct nationwide hard money loans lender of bridge/hard money mortgage lending as well as small and large balance commercial mortgages. At Express Capital Financing, our hard money mortgage advisors engage in a solutions-focused, consultative approach. We understand each client’s specific needs and goals and present the best approach to satisfy the real estate investor’s requirements. Express Capital Financing possesses a unique market knowledge that is critical in today’s complex and volatile environment. Express Capital Financing’s integrity, relationships and our determination are uniforms in every transaction in which we participate. If you are interested in working with us on your next commercial loan, reach out today!