Category: Commercial

Commercial and Multifamily Mortgage Delinquencies Decreased in January

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WASHINGTON, D.C. (February 2, 2021) – Delinquency rates for mortgages backed by commercial and multifamily properties decreased in January, according to the Mortgage Bankers Association’s (MBA) latest monthly MBA CREF Loan Performance Survey. The survey was developed to better understand the ways the COVID-19 pandemic is impacting commercial mortgage loan performance.

“The stress in commercial mortgages continues to be concentrated among the property types that have been most directly and immediately impacted by the pandemic, most notably lodging and retail properties,” said Jamie Woodwell, MBA’s Vice President of Commercial Real Estate Research. “Among some other property types, including office and multifamily, overall delinquency rates remain lower, but have climbed slightly in recent months. While MBA is forecasting for a strong economic rebound in the second half of this year, as a rapid roll-out of vaccines and continued government fiscal assistance to households and businesses provide support for the market, there still remains a heightened sense of uncertainty about the months ahead.”

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    What an Uncertain Commercial Real Estate Outlook in 2021 Means for Financing

    By Steven Caligor, BHI

    In these early days of 2021, there appears to be some cautious prospects of hope.

    A COVID-19 resurgence both internationally and domestically, further lockdowns, and even a new variant of the virus create uncertainty. However, the vaccine rollout has sparked market rallies, along with hopes of returning to a degree of normalcy toward the end of the year. We now have a stimulus package and a new presidential administration. Yet this scenario is tempered by a focus on the predicted winter COVID activity, thus creating further question marks.

    Even the economic forecasts present a mixed picture. The base case from the Conference Board calls for a 3.4 percent annual expansion of the U.S. economy in 2021. Yet the Congressional Budget Office (CBO) projects that GDP will increase 4.2 percent in 2021, and the CBRE Real Estate Market Outlook forecasts 4.5 percent GDP growth this year.

    The ambiguity of where we are in the COVID crisis — whether there is an end in sight and when — will determine prospects for the real estate sector. In 2021, the real estate story will be all about asset class, density and geography. For each of these aspects, to paraphrase Charles Dickens, it could be the best of times or the worst of times, depending on multiple variables.

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      There’s ‘a lot of opportunity’ in real estate as pandemic pinches property market, says investor

      There is “a lot of opportunity” for investors to take advantage of distressed real estate assets, according to one of London’s prime property investors.

      Opportunity abounds for investors looking to seize on distressed real estate assets in the wake of the coronavirus pandemic, according to one of London’s prime real estate investors.

      Thomas Balashev, founder and CEO of Montague Real Estate, said real estate has been unduly hammered during the downturn, creating opportunities for buyers to make gains as the economy recovers.

      “I think it goes without saying that there will be a lot of opportunity,” Balashev told CNBC’s “Squawk Box Asia” on Tuesday.

      A different kind of crisis

      Unlike in the 2008 Financial Crisis, which was linked directly to the U.S. housing market and enabled opportunities for some people to “get ahead of it,” the current economic crisis caught the market off guard, hurting otherwise sound assets, Balashev said.

      “If you look at the way the pandemic’s been handled, both politically and the devastating effect it’s had economically, it’s caught many people by surprise,” he said. “So assets that really shouldn’t be distressed, shouldn’t have had such a significant drop in value, have suddenly come onto the market.”

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        Distressed Commercial-Property Sales Seen Surpassing Last Crisis

        CoStar Group estimates that $126 billion in CRE assets will be sold at distressed prices through 2022.

        (Bloomberg)—An estimated $126 billion in commercial real estate will be forced to sell at distressed prices through 2022, more than the first two years after the global financial crisis, according to CoStar Group Inc.

        Distressed hotel, retail, office and other properties will continue to flow to the market over the coming five years, potentially reaching $321 billion in sales by 2025, the real estate analytics company said. The total may swell to $659 billion in a worst-case scenario, according to a CoStar presentation released last week.

        Mortgage delinquencies have soared for hotel and retail properties during the pandemic, while office buildings face an uncertain future as employees continue working remotely. Regulators have so far avoided pressuring lenders to recognize losses, while most borrowers continue to hold out hope for a rebound, especially as Covid-19 vaccines begin distribution.

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          The Opportunities and Challenges of Sourcing Deals in Today’s Environment

          CRE pros talk about how they are sourcing deals and investors as in-person meetings remain largely on hold.

          Less than two weeks before Thanksgiving, commercial real estate investment professionals James Simmons and Sonya Rocvil spoke as part of a six-person panel on investing, acquisitions and development during the Diversity in Commercial Real Estate Virtual Summit, organized by the Avant-Garde Network on Nov. 14.

          Rocvil, founder and principal of New York City-based Bedrock Real Estate Investors LLLC, which focuses on workforce housing, says the 10 virtual events where she’s spoken this year haven’t led to any deals yet. But she hopes they have set the table for possible acquisition and capital deals in 2021. At the moment, her firm’s portfolio comprises two multifamily properties in Georgia.

          Rocvil notes that the absence of face-to-face networking since the pandemic started has been challenging, but it hasn’t halted networking by phone and through electronic means. Speaking at virtual events has been effective in broadening Rocvil’s circle from her home turf of New York City to the rest of the country, she says. In addition, she’s been able to rekindle connections that may have been somewhat dormant prior to the pandemic.

          “We’re in an environment now where your level of exposure can be even more than it was in an in-person environment,” Rocvil says. “I’m definitely stepping outside my comfort zone, I have to say, but that’s how you grow.”

          Bedrock Real Estate Investors currently syndicates deals for multifamily properties, mainly through family and friends. But Rocvil hopes to attract family offices and high-net-worth individuals (HNWI) as investors.

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            All Hail Amazon: Why E-Commerce is All Powerful in CRE

            One hundred new warehouses. One thousand new delivery hubs. One hundred thousand jobs.

            Amazon likes its numbers round, and it likes them in headlines. The e-commerce behemoth has been on a tear over the last several months, leasing, outfitting, and opening hundreds of millions of square feet across the country, in stark contrast to the general economic gloom.

            Amazon opened 100 warehouses in September alone, in addition to the 100 distribution facilities and 1,000 neighborhood delivery hubs it leased, or plans to lease, in the near future.

            It has more than 100 million square feet of planned space underway, and has ramped up its activity across the United States. These include at least six new warehouses in Georgia, four in the Atlanta area; at least seven distribution centers in Texas, near Dallas, Houston, Austin and El Paso; five scheduled to open in Arizona by December, doubling the number of its facilities in that state; and 12 in California.

            Online sales have skyrocketed during the pandemic, so it’s no surprise that the
            e-commerce king is a pandemic winner. In the process, Amazon is taking a lot of industrial real estate with it.

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              Trump Tax Saga Shines Spotlight on Benefits of CRE Ownership

              Depreciation, debt write-offs, tax credits and other measures are among the tax avoidance benefits inherent in the sector.

              It may seem like a lifetime ago, but before news of the ongoing COVID-19 outbreak involving President Trump, White House staffers, Republican politicians and others, the New York Times stirred up a political firestorm surrounding President Trump’s personal finances with a new investigation revealing a staggering amount of business losses over the past two decades. The headline grabber was that he paid just $750 in personal federal income taxes in 2016 and 2017 and nothing in 11 of the 18 previous years. Additionally, the article said he claimed a total of $1.4 billion in losses from his core businesses for 2008 and 2009 and collected a $72.9 million refund for the 2010 tax year.

              The article is just another chapter in the ongoing saga of President Trump’s personal tax returns, which he has chosen not to release to the public as most political candidates have done in recent decades. The New York Times piece amplified earlier reporting it had done in 2019 alleging that President Trump had reported $1.17 billion in losses from 1985 to 1994. As with those findings, the new revelations have put the tax benefits of commercial real estate ownership firmly in the spotlight.

              President Trump has said publicly that he has paid millions in taxes, including property and payroll taxes. At the same time, he also has been candid in admitting he has utilized tax credits, deductions and real estate depreciation to offset income. For example, the Trump Organization received $40 million in Federal Historic Tax credits for its 2014, $200 million renovation of the Old Post Office just blocks from the White House into the 272-room Trump International Hotel on Pennsylvania Avenue.

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                U.S. Commercial-Property Prices Fall with Worst Yet to Come

                Year-to-date through July, hotel prices fell 4.4 percent, retail prices 2.8 percent office prices 0.9 percent, according to Real Capital Analytics.

                (Bloomberg)—U.S. commercial real estate prices are falling as the economic toll of the Covid-19 pandemic worsens — and the decline is just getting started.

                Indexes for office, retail and lodging properties all slipped year-over-year in July, data from industry tracker Real Capital Analytics Inc. show. Transaction volume plummeted to $14 billion across all sectors, down 69% from July 2019.

                “The worst is yet to come,” Real Capital Senior Vice President Jim Costello said in a telephone interview. “We’re not seeing the fallout yet of owners selling properties and taking a loss.”

                Commercial real estate deals have been in a deep freeze as lenders give borrowers slack to defer payments and landlords are reluctant to drop asking prices. That may change in the next few months as debts mount and the outlook dims for retail, hotel, office and even apartment properties that already suffered from oversupply before the pandemic hammered the U.S. economy.

                “I wouldn’t be surprised if we start to see some of it start to break in September or October,” Costello said.

                Hotel prices dropped 4.4% in the year through July, while retail declined 2.8% and offices fell 0.9%, according to Real Capital. Apartment building prices climbed 6.9%, and industrial values rose 8.3%, leading to a 1.5% gain for all property types in the period.

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                  Credit Unions are Making a Bigger Play for CRE Loans

                  Credit unions are an attractive option for borrowers who are seeing fewer lender bids, particularly from banks and debt funds.

                  Credit unions that have been working to grow market share in the commercial real estate lending space in recent years are taking advantage of open runway as other capital sources have pulled back in recent months. In fact, these institutions are willing to offer competitive terms and creative solutions.

                  “What we have seen from credit unions is that they are willing to finance property types that others aren’t doing,” says Pat Minea, executive vice president, debt and equity at NorthMarq. NorthMarq estimates that its financing activity with credit unions is about 50 percent higher this year compared to last year. Since March, the firm has closed more than two dozen financing transactions with credit unions as the lender for borrowers across the board involving multifamily, industrial, retail and office projects.

                  There are plenty of capital sources still willing to finance multifamily and industrial assets. Interest drops off, however, for office and retail properties with financing that has become tougher because of COVID-19.

                  “We are having to dig a little deeper to find the terms that borrowers want in the current climate, and credit unions are a great example of that alternative,” says Minea. “They are more receptive, for whatever reason, to doing these deals that, in today’s world, are a little more on the edge.”

                  For example, credit unions are still willing to finance single-tenant retail and unanchored retail properties. That may be because credit unions don’t have as large of a loan portfolio and potential concentration risk to that sector as other lenders might have, notes Minea.

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                    Distress Mounts in U.S. Property Market Frozen by Pandemic

                    Investment sales of U.S. commercial properties fell by 68 percent year-over-year in the second quarter, according to RCA.

                    (Bloomberg)—The U.S. commercial real estate market is showing ever greater signs of stress, but there are still few deals to be had.

                    Transactions fell 68% in the second quarter across all property types compared with 2019 as potential buyers and sellers remained far apart on the prices of buildings, according to data released Wednesday by Real Capital Analytics.

                    The paralysis set in despite near-record amounts of capital ready to be deployed by some of the world’s biggest real estate investors.

                    “The buyer and seller expectations are not aligned,” said Simon Mallinson, an executive managing director at RCA. “Sellers aren’t being forced to the market because there’s no realized distress and buyers are sitting on the sidelines thinking there’s going to be distress.”

                    Industrial Strength

                    Second-quarter sales plunged 70% for apartments, 71% for offices, 73% for retail and 91% for hotels, according to RCA. Industrial property transactions were a brighter spot. Sales dropped only 50% in the second quarter, as online shopping thrived and manufacturers leased space to avoid supply chain disruptions.

                    For markets to function, there needs to be some agreement on what assets are worth. But the surging coronavirus outbreak is fueling uncertainty, making the outlook for commercial property just as cloudy as it was in March when lockdowns put the economy into deep freeze.

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