Lenders are still wary about funding retail properties, as they’re perceived as the epicenter of COVID-19. That will change with more data, according to Citi Investment Banking managing director and head of North American real estate Scott Eisen. “We’re going to need one quarter of post-COVID-19 rent collections to know what kind of revenue we’re underwriting.” The market for small and large loans will pick up after that, he said on the recent ICSC Connect Virtual Series episode Real Estate Investment Impacts During COVID-19.
Banks, insurance companies and special servicers are responding well to existing clients refinancing existing centers, said Schecky Schechner, Barclays Capital managing director and Americas co-head of real estate investment banking. “When the borrowers are coming in, they’re looking for relief from sweep triggers, waivers, forbearance of covenants. They’re looking for the principal amortization payment to be deferred,” he said. “Some folks are actually asking for interest rate payments to be deferred.” If the borrower has a good record of maintaining and operating the asset, the lender will want to let them keep control of it, Schechner said. “Most lenders like to play ball. If you’re running into extreme trouble with your lenders, there’s something else going on.”
Financing for acquisitions
Does new debt for acquisitions exist? “We’re making good progress there,” said Goldman Sachs global co-head of real estate investment banking Mike Graziano. The commercial mortgage-backed securities market shut down for the first several weeks of the COVID-19 crisis but is quoting new loans for non-retail and non-lodging properties, he said. “It’s too hard to underwrite assets that are closed,” he said, but that will change once lenders and borrows have more data from which to forecast.
Industrial, multifamily and office properties are receiving offers for post-pandemic financing. Mortgage borrowers are getting loan offers 20-25 basis points higher in cost than they were before the pandemic, he said. “That’s pretty amazing in terms of cost of capital,” Graziano said. “It wouldn’t surprise me if the market opened for new loans soon. The unsecured market has been wide open now for a while.”
Increased interest in financing retail properties, though, likely won’t come until 2021, Graziano, Eisen and Schechner agreed. Acadia Realty Trust president and CEO Ken Bernstein was more bullish: “I predict private debt markets come back sooner rather than later because the pricing is compelling and the NOI will be there, but we all need to be sober about the reality that, at least right now, the money is heading elsewhere.”
The full ICSC Connect Virtual Series episode is available here.
Click to read about and listen to other recent Virtual Series episodes from ICSC
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By Brannon Boswell
Executive Editor, Commerce + Communities Today