Our Perspective 4/ 6/ 2020

Capital Corner: Lending Updates, Resources for Businesses

As we open up the books on April, we are seeing some settling in the markets. Interest rates remain low, leading to a lower cost of borrowing. These low rates provide a silver lining to help offset some of the new structure requirements that lenders have added. While these new requirements appeared at first as barriers, the overall capital picture shows continued liquidity.

LENDER UPDATES

Agencies (Fannie Mae, Freddie Mac, FHA/HUD)
The government-sponsored agencies continue processing a significant amount of refinance business with a particular focus on cash-out metrics. Acquisition business, in some cases, adjusted to the new escrow requirements with no other changes to the original loan terms. Similar to last week, all-in rates on Fannie Mae significantly compressed as spreads settled in at a fairly consistent clearing level. Fannie and Freddie loan pricing is generally in the 3.20-3.90 percent range contingent upon loan specifics. Interest-only is being quoted on most transactions.

Many borrowers are showing a significant level of interest in HUD financing, both refinancing of existing properties and potential new construction transactions. Rates have remained fairly steady over the past week, with 223(f) rates approximately 2.80 percent and 221(d)(4) rates in the range of 3.50 percent. There are varying reports about HUD field offices imposing unique underwriting guidance due to the coronavirus, but no official announcements have come from HUD headquarters. Of particular note, there have been reports that HUD may be requiring a debt service reserve for 223(f) transactions during this unique market condition, most likely for new transactions.

Due to the continued difficult economic climate, forbearance direction was updated late last week from the Agencies, following finalized language in the CARES Act. Our overall advice remains to submit April loan payments and then consider the implications to each unique situation. Finally, contact your NorthMarq financing expert to fully understand the available options.

Insurance Companies
Insurance companies are still seeking new loan opportunities for high-quality transactions. Within the overall group, price discovery remains an overall issue given the recent volatility in the corporate bond market and concerns regarding property fundamentals. All-in, 10-year rates vary widely as we have locked rates as low as 2.75 percent and had quotes as high as 4.50 percent. Generally, most groups are in the 3.30-4 percent range. Most major property types are still being considered including select retail opportunities.

Preferred and Hybrid Preferred Equity
Investors are pushing out more preferred equity structures to help solve a need for “gap” capital on acquisition and refinance business. Preferred equity structures are generally up to 85 percent of value with a fixed coupon in the 9-12 percent range. Hybrid preferred structures will go higher in the capital stack, at times exceed 90 percent of value. The coupon on the hybrid structures mirror those of standard preferred equity but typically also include an equity participation.

RESOURCES FOR YOUR BUSINESS
With the labor markets beginning to record unprecedented disruptions and with a new program being floated, introduced, enacted or revised seemingly every few days, we thought it would be helpful to put into one place a resource guide of sorts addressing some of the pertinent issues that might be impacting your business or your tenants’ businesses.

The Coronavirus Aid, Relief and Economic Security (CARES) Act passed by the U.S. Congress on March 27, 2020 and provides financial assistance in three key areas:

The Paycheck Protection Program (“PPP”) authorizes up to $349 billion in forgivable loans to small businesses to pay their employees during the COVID-19 crisis. All loan terms will be the same for everyone; the loan amounts will be forgiven as long as:

  • The loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over the 8 week period after the loan is made; and
  • Employee and compensation levels are maintained.
  • Visit www.sba.gov/funding-programs/loans/coronavirus-relief-options for a list of SBA lenders and full details on the options available through the Small Business Administration

Direct Payments to Taxpayers
One aspect of the CARES Act that will provide some immediate relief to millions of taxpayers will be direct payments to taxpayers. While there are some exclusions, the general program is available through the IRS For most Americans eligible for the direct payments, no additional action is required.

  • For people who have filed their taxes and included direct deposit banking information for refunds (the vast majority of filers), direct payments are forecast to begin to be delivered in late-April/Early May.
  • Americans who qualify but do not have banking information on file will receive paper checks in late-May/early-June.

CARES Act Impact on Unemployment Benefits
While the states administer unemployment insurance programs, the CARES Act adds an additional $600 per week to recipients to the existing state benefits through the end of July. Benefits vary by state, with most states averaging approximately $400 per week. Unemployment benefits must be applied for at the state level. Each state administers its own unemployment program, and filing for benefits is typically done online or over the telephone.

Contact Us
We understand this is a difficult time for many of you, and encourage you to contact us directly to discuss your specific loan or financing situation. Find our experts by visiting our office page.