facebook
X

The browser version you are using is not recommended for this site.
Please consider upgrading to the latest version of your browser by clicking one of the following links.

Research

Commercial Real Estate During and Beyond “The Great Pause”

Commercial Real Estate Financing Through COVID-19

Historic episodes are titled in order to attach some brief description and meaning to the event.  Some examples are the Roaring 20’s, World War (I & II), the Great Depression, the Industrial Revolution, the Internet Boom, the Great Recession, and of course, the American Revolution.  We do so because the event or chain of events changes our viewpoint and perspectives on humanity and how we conduct ourselves after the event.  We might long debate the necessity of the extreme measures taken by governments globally in response to the COVID-19 pandemic, but that is not the purpose of this article.  Nor is it the point to identify an appropriate title to the event.  The focus here is to contemplate how this will change our viewpoint and how we conduct business with a relatively narrow focus on commercial real estate and finance.

Historical Context

The United States of America was established upon a foundation designed for prosperity and growth, even among conditions that exist today.  To be sure, it was born against significant odds.  Yet, here we are.  Based on the previous titles referenced, it appears that we experience more bad times than good.  But that’s not necessarily true.  Difficult times don’t last long and because they’re relatively unusual, we give them distinction.  They mark a historical learning lesson of times that we do not wish to revisit again and should not forget.

On October 28, 1886 the Statue of Liberty was formally unveiled despite miserable weather.  Originally planned for delivery on the 100-year anniversary of the signing of the Declaration of Independence, it eventually was unveiled more than a decade late, to great fanfare, nonetheless.  As a side note the statue’s creator, French sculptor Auguste Bartholdi, initially lobbied to place a variant of the statue at the entrance to the Suez Canal.  The point is that “Lady Liberty” is just one symbol of the United States that represents the liberty, justice and opportunity that so many other nations around the globe have sought to emulate.  We are once again facing very difficult odds.  Our ingrained sense of liberty and pursuit of happiness drive our mental state to create, produce and strive in these periods.

Focus on Commercial Real Estate

Commercial real estate (retail, hotels, apartments, offices, warehouses and industrial properties), represent over $6 trillion worth of US value.  Through this real estate, our population works, shops, take vacations, transacts, lives, stores goods and merchandise, manufactures and distributes.

Forced changes due to “Stay at Home” orders around the nation will certainly have at least a short-term impact on how our society interacts.  Those that can have quickly adapted to working from home, embracing a significant dependence on technology.  Of course, there were a few speed bumps in the form of a slow internet connection, the random child entering the room in loud fashion and participants not realizing when to mute or turn the camera on/off.  The use of video conferencing and webinar presentations were not overwhelmingly challenging, in part because a significant percentage of the work from home crowd was already using smart phones and social media.  But what about all that commercial real estate?

In the long term, we will adapt and shift our perceptions, business strategy and expectations. If you were already good at your business operation prior to the pandemic, you’ve been doing this all along.  This is because you constantly evaluate your business efficiency, sales and marketing, expenses, financial structure, etc.  What parts of the short-term measures will be preserved and expanded, and what will be all new and yet to be developed?  This is exciting, and I’ll tell you why.  I’ve spent a career in commercial real estate finance, specifically financing apartment building acquisitions, refinances and new construction.  The commercial real estate finance industry has been built over decades and the methods and practices are institutionalized and bureaucratized.  At some point in my career, as the Internet was evolving and changing the world, I wanted to capitalize on these new technological advancements.  However, it was extremely difficult to incorporate the benefits of technology into a long-standing institution.  The commercial real estate industry is not known as early adapters.  The good news is that sometimes, we are forced to act.

Fear, Necessity, Survival and Innovation

Recently there have been a plethora of articles, webinars and podcasts by experts, “thought leaders”, influencers and analysts.  While these might offer some nuggets of relevance, it is very difficult to discern their actual value given none of the individuals offering the material have ever experienced anything like the current situation.  People are looking for answers and opportunity.  Let go of the fear you might be experiencing and embrace your survival instinct to see the world as one that is filled with vast, never (or rarely) seen opportunities.  “The Kybalion” is a book from 1908 which is based on the teachings of Hermes Trismegistus.  Among the 7 principals from The Kybalion is “The Principal of Polarity” or the law of opposites -meaning everything that exists has an opposite.  There will always be an alternative that is equal.  Think about what that means right now.  That would mean that this is a unique period where many see significant negativity surrounding them.  But for those with the right mindset, this is a period with vast and rare opportunity.

How do you tap into this opportunity?  In terms of commercial real estate finance, some lenders are contracting out of concerns over property valuation and long-term cash flows (therefore the ability to repay debt).  They are pulling back on the cash-out refinance loan programs and have been more cautious with underwriting guidelines.  It is a reaction based upon the current circumstances and often overlooks a borrower’s credit and business history.  It also exposes how closely commercial real estate is connected to employment, population, local commerce and global trade.  But for this moment, even if your immediate situation is difficult, try to focus on the unprecedented opportunity that is the exact opposite of what you’re facing.

You will need to be unconventional and to innovate.  Many will consistently restate the obvious to reinforce your fears.  You might have to work twice as hard, but the opportunity is out there. Companies are finding creative ways to survive and grow against these odds.  As a matter of fact, our commercial real estate finance team is seeing many people seeking to secure a cash-out refinance of their apartment or office buildings, while some people are seeking bridge loans.  These are educated risk takers.  They are finding creative solutions to structure financing on their projects, acquire more assets when interest rates and capitalization rates are very low.  They recognize that this situation is temporary and the opportunity is vast.

Leverage Your Tools

Technology changes many things quickly.  We can do much more per hour compared to just 10 years ago.  But technology can also be taken for granted.  Your best tool is your mind and the ability to create, while technology is the method of implementation.  CommLoan is a Scottsdale, Arizona based commercial mortgage brokerage company that has developed a commercial mortgage “Marketplace”.  They have combined the best minds and technology that is very well suited to function in the post-Covid environment.  But this was developed well before the current pandemic.  CommLoan operates with a focus on maximizing efficiency and empowering the borrower.  This brings efficiency to an institutionalized service while exceeding borrower expectations and doing more by capitalizing on technology.  We operate as advisors for borrowers and are a powerful capital markets partner for investment sale brokers.

Back to The Founding

This article began by referencing a bit of history and will end with this quote from our Declaration of Independence: “…we mutually pledge our Lives, our Fortunes and our sacred Honor”.  These words once inspired the founding of a great nation.  This is the time that we are in, the challenge that lies before us, and the vast opportunity that is yet to be discovered.

If you want to search for the best alignment with a lender, get the best terms, explore your opportunities or need a capital markets advisor, consider using CommLoan. CommLoan is an all-in-one platform that lets you compare lenders and terms with ease. They empower the borrower with market knowledge and make commercial lenders compete for your business. Get started with your free, no obligation financing quote today.

Article Written By: Paul Mogote