Capital Corner: Update during uncertain times

During this period of uncertainty, NorthMarq continues to lock interest rates and transact even with the current market challenges. The volatility of the indices such as the 10-year Treasury hitting record lows and moving drastically day-to-day and hour-to-hour has presented challenges, but lenders are actively investing in commercial estate mortgages. It is important to know which lending sources are transacting, and most importantly, how that affects your investments right now.


Our assessment of the current lenders
The capital markets are generally trying to measure the impact of COVID-19 on the economy, markets, and real estate. The most activity is in refinancing from short-term or higher priced loans into less expensive, longer term debt. This offers a quick increase in monthly cash flow in all property types, helping borrowers/investors weather the storm. We recommend that all investors take advantage of this window of opportunity now to capture the benefit of the fluctuations in the markets. 

Agencies (Fannie Mae, Freddie Mac, FHA/HUD)
The agencies continue to transact business with very favorable rates. They are currently providing the liquidity for a majority of the multifamily projects. For example Fannie Mae will allow flexibility on inspection requirements to ensure safety by allowing inspections to be limited to unoccupied units and common areas. All agencies have eliminated their near stabilization programs for the time being, and we expect to see other adjustments in the coming weeks. Overall, we are encouraged by the quick response from the government-sponsored entities; they are focused on their mission of keeping liquidity and stability in the housing markets.  

In addition, we believe owners should consider FHA/HUD loans, which offer low long term rates as well as construction options as banks may become more conservative the longer this instability persists. The elimination of the three-year rule will be ideal for many newly completed projects. They take a little longer to complete, but this lender was crucial to how our industry succeeded during the great recession. 

Life Companies
As a whole, life companies are offering loans but at various levels of pricing. Although most are pricing in the 3.25-3.75 percent range, there are exceptions with pricing inside of that range. Last week we experienced disruptions due to corporate bond pricing, which put many life companies in price discovery, and some temporarily went to the sidelines. They all continue to have robust allocations for CRE as an asset class, and we still see this capital source as providing good long-term opportunities but perhaps taking a short-term pause.

Bridge lenders did experience a quite a scare at the onset of this crisis, but are adapting quickly to create programs that help borrowers through the interim. Spreads are wider, floors are lower, and they are looking to leverage their position as quickly as possible. We caution borrowers to understand the business foundation for any bridge lender to ensure they have an ability to close on agreed terms. We are seeing bridge lenders with balance sheet control more able to transact business on time, as planned. 

Most of all, we recommend a review of your current loans and assessing which are best suited to convert to longer term to take advantage of the best pricing. We can quickly help you with that evaluation.