Some underwriting standards across the board have being tightened up as lenders begin to finance deals again.

Many lenders that hit the pause button on new originations at the start of the pandemic are stepping back into action, albeit with a more conservative playbook than they had at the start of the year.

One big difference: lenders have new requirements for debt service reserves. Pre-COVID-19, reserves were not required on stabilized assets and generally only used to reduce risk on properties in transition, such as major rehabs or redevelopments. Now debt service reserves ranging between six and 18 months are a standard requirement on new commercial and multifamily mortgages—even those backed by the GSEs.

“Across the spectrum, you’re seeing borrowers being asked to produce higher cash reserves. Some of the underwriting standards across the board are also being tightened up,” says Lonnie Hendry Jr., MSRE, vice president, CRE Product Management at Trepp. Metrics being used to evaluate the underlying collateral, loan-to-value ratios, debt yields and debt service coverage ratios are all being underwritten more conservatively, he says.

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Suraj Shrestha

Suraj Shrestha is an associate at Harborside Partners. He has been taking the lead role on research projects; to develop and implement online marketing strategies for search engine optimization and social media marketing. He is one of the core parts for helping to grow business revenue and the company’s online presence.