Real Estate Capital Scoreboard® – May, 2020

Chicago, Illinois, May 1, 2020 – The Covid-19 pandemic forces the country to suffer from the worst economic downtown since the Great Depression.  Many states extend the stay-at-home through this month, further taxing the economy.  However, premisists, tenants, lenders, and governmental authorities all work together to find solutions for mitigating personal and business financial hardships.  And pharmaceutical companies rapidly scramble to find possible virus cures.

On the commercial real estate front, entrepreneurial lenders and equity investors resurface in search of repriced asset opportunities, especially targeting distressed asset classes.  For prime-quality loans, pricing in the low-4%-range ranks favorably, but leverage and debt coverage remains challenging — active lenders with creative funding programs (e.g., Mezz debt) demand lower-teen returns. Furthermore, lenders demand at least six months of debt services reserves for exploring new loan fundings. And although transaction volume plummets to a screeching halt, buyers cautiously bid on select deals as equity funds exercise strong discipline in investing.  At the same time, well-heeled premisists stay on the sidelines carefully managing existing holdings.

The Real Estate Capital Institute’s director, John Oharenko, cautions, “availability of funds supersedes any pricing discussions. Cash is king, once again.”

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