Webinar Recap: Spotlight on Post-COVID Commercial Real Estate Financing

As the COVID recovery rolls on, lenders are returning to the market after last year’s historic retreat.

Drew Heitstuman, capital markets director of JLL Seattle, joined us for our June webinar (full video below) to look at commercial real estate financing and what to expect for the second half of the year. 

Lenders are Lending

While the news was full of reports about the evaporation of deals in the retail, office and hospitality sectors, investment in the multifamily and industrial properties remained strong during the pandemic – and even got more competitive in some markets. Now that things are opening back up and people are slowly returning to work, deal velocity is increasing but it’s still challenging.

Stress metrics that changed during COVID largely remain in place, such as requiring debt service reserves and holding back proceeds (reducing them by 10 to 15% in some cases). And because lenders are still cautious, they scrutinize deals much more closely which adds time to the process.

Investors in the market should maintain flexibility and a positive attitude because material shifts in numbers, reserves LTVS and more are possible right to the last minute – and you want to be able to act reasonably in the face of unreasonable requests. Stay in regular communication with your lender to avoid surprises.

Looking Ahead 

Seattle remains an enticing market for commercial real estate investment. The economic levers aren’t just Boeing and one or two more behemoths. There are more than a dozen Fortune 500 companies in the metro are and more businesses are looking to grow and get into the market for commercial property.  Additionally, data from JLL in migration trends show that employers and employees want to be here, drawn by better affordability than other coastal business hubs like New York; Washington, DC; Los Angeles; and San Francisco.

Puget Sound Net Migration, JLL

Seattle Market Income Comparison, JLL

Two sectors to Watch - Office and Multifamily

Contrary to conventional wisdom early in the pandemic, there hasn’t been a radical shift away from office space. While some large tenants have put some space back on the market, there hasn’t been a noticeable slow-down in transactions.

Multifamily rents are on the rise with decreasing vacancy and concessions, which is good news for collections. Uncertainty remains around evictions, with moratoria in place at the local and federal levels. That’s frustrating for smaller landlords looking for financing. For bigger loan deals, however, rents are high enough and the clientele is stable enough there hasn’t been a very high default rate. There’s a small percentage of tenants not paying rent but it’s not having as big an impact as lenders thought. At Holmquist & Gardiner, we’ve seen a few evictions for trespass and criminal activity, but that could be deceptive. We know there’s a backlog – but no one’s sure how big it is yet.

The rest of 2021 and early 2022 will be active and competitive as investors who put plans on hold during the pandemic get back in the market. And with so much liquidity in the market borrows will benefit from competitive pricing. We also expect to see higher LTVs, though don’t expect to get your full leverage because of the more stringent underwriting metrics.

You can get more details on these topics by watching the full session below. This information doesn’t constitute financial or legal advice. Always check with an attorney, real estate investment or financial expert before making decisions.

As always, reach out if you have any questions.