Real Estate Capital Scoreboard® – April, 2020

Chicago, Illinois, April 1, 2020 – Since last month, the world dramatically changed with the coronavirus epidemic.  Public health and safety supersede any business discussions.  Yet the wheels of commerce roll on with the most massive federal bailout in US history followed the equally dramatic stock market gyrations not seen since the Great Depression.

Today, any discussions of real estate capital markets focus on defensive strategies.   Owners work with investors and lenders in managing cash flow problems, as tenants fail to meet rent obligations resulting in job losses, business interruption and other causes relating to COVID-19.

The disruptive environment directly affects real estate lending based on
the following key points:

Dramatic Pullback:  Conduits, many banks and life insurance companies retreated from the market in response to intensely compressed near-zero interest rates and the Fed actions. Lenders continue completing loans in process but shun any new origination opportunities for the moment.

Widened Mortgage Rates:  Uncertainty instantly affects pricing, as funding sources ignore pricing over treasuries, but instead rely on rate floors ranging from 3.5% or more for ten-year loans.  Also, uncertainly looms for any pricing discussions beyond Immediate-funding loans.

Shifting Responsibilities:  In addition to working from home, lenders scramble to move production staff to workout and loan servicing roles.  Borrower requests for loan relief overwhelm personnel resources.

The intensity and scope of commercial real estate concerns will dramatically expand over the next month as pandemic conditions worsen, although conditions should hopefully improve later this spring. 

According to John Oharenko of the Real Estate Capital Institute®, “The complete dislocation of living and working conditions creates too much uncertainty for understanding the immediate direction real estate market.  No doubt, the recession has begun, but conditions will improve as the nation’s ingenuity, and resilience eventually overcome this virus.  Stay safe!”

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