Where to Find Real Estate Investment Capital Right Now

With the commercial real estate industry in a relative standstill right now, lenders have become increasingly cautious, particularly because rent collections are uncertain in the short term in every asset class. Instability in capital markets, rising unemployment and the free fall of public REITs have caused lenders to switch their approach from offense to defense. For example, conventional balance-sheet lenders are especially careful. Covid-19 forced these lenders to extend forbearance to borrowers with unstable collections. Still, these lenders, while less active, are transacting with under-leveraged borrowers and closing transactions that were in the pipeline prior to the pandemic. Meanwhile, the current situation presents an opportunity to private lenders filling in the market gaps with shorter-term, relatively higher-rate loans.

Capital markets are active, but the landscape has shifted, and you need to be strategic about your financing decisions. It’s not really a surprise that private lenders are still active. Even before the crisis, they were typically open to deals that had underlying issues or higher risks.

• - What About Large Banks?

The traditional balance-sheet lenders are being highly conservative, focusing mainly on what they see as more bankable asset classes, such as multifamily and industrial. This isn’t to say that all balance-sheet lenders will be open to discussing your deal, even if you have a solid industrial property in a strong geographical market. “There’s an abundance of caution right now,” says Eli Weisblum, Director of Capital Services with Ariel. “Some lenders aren’t looking at new deals until they reassess the market situation, while others are tightening their underwriting guidelines or will only consider repeat clients.”

Fannie Mae and Freddie Mac, for example, are experiencing a record number of loan applications and they are revising their loan policies to be more stringent as a result. “It’s a lender’s market right now, and each one is going to approach this differently,” says Weisblum.

• - Strong Borrowers Will Benefit?

There is still lender activity today and, as the situation stabilizes, there will be more lenders providing financing. As an investor, the type of property and location will determine the opportunities, but overall, the cost of capital will be low for the foreseeable future. This presents a tremendous financing opportunity for borrowers. While the lending market is going through an adjustment, well-positioned, under-leveraged assets and sponsors will benefit from current market conditions.

Topics: Real Estate Investment, COVID-19

Work cited: Shimon Shkury, Forbes, May 12, 2020

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