Updated: May 1, 2020
March 26, 2020 - The current lending environment continues to change day-to-day. Virtually every aspect of the economy has been affected by the pandemic. We are talking to lenders across the country regarding loans of all sizes, and will continue to update you with new information. Here’s what we are hearing this week:
Rates are extremely volatile and changing daily in both directions, depending on the lender and the property type. The combination of increased demand and greater liquidity for both short-term and long-term loans moved some interest rates up and down almost a full percentage point over the past two weeks; however, the changes are not consistent among all lenders and vary widely throughout the market. If you are currently shopping for a new loan, don’t assume the rates & terms quoted from one lender will be similar across the board.
EXISTING LOAN PAYMENTS
Loan servicers are being bombarded with calls asking for breaks on payments due to uncertainty about tenants paying rent or other loss of business. Fannie Mae and Freddie Mac both announced forbearance programs for apartment owners whose collections are down due to tenants losing their incomes.
If you currently have a loan and are in need of relief, identify your needs, contacting your loan servicer, and explain the situation to find out information about their emergency forbearance programs. You may need to expressly mention “COVID-19” and explain how your business has been affected in order to access certain emergency programs. In other words, many institutions will not expressly offer access to their emergency programs. You may have to ask for them.
Obviously, the economic impact from this pandemic is going to affect underwriting for new loans. Some lenders are taking this as an opportunity to attract borrowers and create new relationships, betting that the long-term fundamentals remain strong, while other lenders are retreating into a holding pattern.
Multifamily loans, despite the significant potential for lost short-term income, remain the most relatively stable with regard to refinance rates and terms, at least among those institutions still willing to write loans. Mixed-use, retail, and office properties are going to be far more difficult to underwrite in the coming quarter, if not longer. Knowing which lenders remain active will be the key to success for owners looking to refinance.
Many lenders, especially those affiliated with the Small Business Administration (SBA), are making short-term and long-term credit lines available to small businesses, with several months of no-interest. Smaller loans, such as those below $30,000, may receive expedited underwriting. To get information on these programs, go to SBA.gov, call your lender, or contact us at Evergreen Capital for guidance.
WHAT TO EXPECT
The situation is extremely fluid, and the news continues to change day-to-day. Expect the legislature, Wall Street, and lending institutions to react in a similar manner. But for now, borrowers are advised to move quickly to execute any plans they may have, as the uncertainty can only increase long-term risk.
The recent announcements from Fannie and Freddie, along with the expected forthcoming stimulus package from Congress, indicate that the long-term outlook is cautiously optimistic, and many institutions are showing that they are committed to working with stakeholders at all levels. If both residential and commercial tenants are able to secure some financial assistance from the federal government, that should help offset losses related to investment real estate and bring a bit more stability to the market. But we expect volatility to remain for quite some time. Access to up-to-date information on the lending market is an advantage during times of crisis. Contact us at Evergreen Capital for help.
- Trevor T. Calton is the President of Evergreen Capital Advisors LLC. He is also a Professor of Real Estate Finance at Portland State University, where he has been teaching since 2011. Trevor is a veteran of Commercial Real Estate & Mortgage Banking since 1997, with extensive experience in mortgage banking, investment acquisitions, real estate sales, and asset management.