The current lending climate, much like the economy as a whole, is marked by volatility and uncertainty. Investors and lenders are subsequently taking a “wait and see” approach as stay-at-home orders are extended and the timeline for economic reopening remains uncertain.
Rates are Low, with a Catch
With the Fed dropping rates to near zero, mortgage rates have fallen to near all-time lows. However, banks have simultaneously increased their underwriting requirements, and jumbo and cash-out refinance products have all but dried up. This means that consumers’ access to these low rates is extremely limited. Many lenders have suspended home equity lines of credit, limiting a property owner’s access to the amount of liquidity on their property’s equity.
On the commercial real estate side, capital markets have diminished with so many lenders sitting on the sidelines. This inactivity drives up rates for real estate investors who are in need of immediate financing.
Commercial Property Values Impacted
Commercial tenants, namely in the retail and hospitality sectors, have been unable to make rent payments, and commercial properties have taken a significant hit. According to the Green Street Advisors commercial real estate index, values nationwide fell 9 percent in April. Industrial, self-storage, and healthcare properties were the least impacted sectors. Values are likely to continue to fall, as leasing empty spaces presents a significant short-term challenge.
Because of these falling values, investors will be grappling with refinancing commercial properties in the coming months.
What’s Certain in an Uncertain Time: Cash
While investors wait out the financial effects of this pandemic, the commercial lender’s appetite for risk is severely diminished. Deals are out there to be had—certainly with more to come—but in most cases investors must be willing to come to the table with a significant cash investment in order to obtain a loan. The days of lenders allowing those high loan-to-value and loan-to-cost ratios will inevitably pause for the time being.
While we certainly don’t know what the future will hold, a few things have become clear from our perspective during the COVID-19 pandemic:
– The viability of working from home has been established for employees in many industries. As a result, companies will rethink their footprint and office space needs.
– Not every company will give up on a brick-and-mortar office. Those employers and companies that do keep their offices are likely to reconfigure workspace arrangements based on best health and safety practices to prevent the spread of viruses.
– For the short-term, commercial loans will be difficult to obtain in many cases, but quality deals will continue to find quality funding.
While you may not be ready to take the leap on your next project today, the sun will come up tomorrow. When it does, whether your project is large or small, give us a call today to start the conversation and talk to one of our experienced loan officers today. Our goal at Juniper is to help you make quality commercial and real estate investments throughout the Pacific Northwest. We take great care to keep ourselves and our clients informed so that you can take advantage of whatever the market brings.