Finding the Needle in a Capital Haystack: Capital Markets Push Forward Amidst COVID-19
It seems like yesterday when the world pushed a giant pause button. Three months ago, mass uncertainty fell across the world causing worry of what was to come. Like many, Capital Markets and the commercial real estate financing segment immediately clamped down as uncertainty hit. Brakes were applied to many transactions; there were fewer players in the capital market and those that remained pulled back, more conservative loan to value constraints were put in place, and pricing was volatile. Fast forward to today, the finance market is improving, gradually. Participants of capital markets and the commercial real estate finance segment are looking forward to what is to come post COVID-19. MacKenzie Capital dives into opportunities that are beginning to show signs of life and how casting a wider net on sources will more effectively accomplish owners’ short-and long-term goals.
Navigating Choppy Waters
The last three months have presented unprecedented challenges for the commercial real estate finance business leaving fewer capital sources and uncertainty for many about where to place their money. Stricter underwriting and longer due diligence periods became common practice for financing that was available. Property types were further differentiated due to accelerated market changes: industrial remains active, multifamily is viable, office is changing, retail is being viewed differently, and hotel financing is on its back. These changes coupled with lenders focusing more intently than ever on opportunities has created a bifurcated market. However, not all has been lost. Lenders are gradually coming back and looking ahead. This beginning improvement is slow, and they are searching for the “right deal.” Lenders are looking to get their money placed, immediately in superior risk-adjusted return opportunities.
The “Right Deal” Considerations
While the commercial real estate finance landscape has changed drastically during this time, and with fewer active capital sources, the interest rate environment remains at historic lows producing tremendous opportunities for the right deal.
Refinancing: If you have a moderate-to-lower leverage investment, look to refinancing. The historically low rates we are currently experiencing will not last forever, and will eventually begin to increase. Refinancing should be considered even if you are facing prepayment penalties, as the benefits may outweigh the risk.
Development deals: Money remains available for projects with pre-leasing and viable submarket conditions and for those with very strong sponsorship and higher equity levels.
Distressed properties: Properties that have experienced the most change (e.g. retail and hospitality properties), can be sourced for recapitalization, or repositioning. Billions of dollars have been raised since the first of the year, accelerating in the past three months, for distressed properties. Many are waiting to see where, when, and if these opportunities present themselves in the market.
Now more than ever, proper capital advisory is essential. MacKenzie Capital can identify viable sources of capital financing still looking to execute and more effectively accomplish the short- and long-term goals of their clients. Their team’s creative, client-focused approach to advisory ensures that their clients are given the hands-on attention and focus that only an independent boutique firm such as theirs can provide. To contact a team member at MacKenzie Capital regarding considerations for commercial real estate financing, or if you’d like to inquire about another matter, reach out to us today by visiting our website, or give us a call at 410-494-6652.