Like all commercial real estate professionals, those working in commercial finance have had to adjust the way they do business over the past 12+ months. But the good news? Commercial loans have remained stable even during the height of the COVID-19 pandemic.
It has been a blessing for the commercial real estate industry and for cities in the Midwest. As commercial finance dollars – after a brief hiatus from some lenders – continued to pour in, office towers, apartment buildings and distribution centers continued to rise in the Midwest even as the region faced. the increase in the number of COVIDs, stay-at-home orders and mask warrants.
Midwest Real Estate News recently spoke with Jeff Musser, senior vice president of the Cleveland office of Bellwether Company, on the current state of trade finance. How has the industry evolved since the start of the pandemic and what does the future look like for commercial lending as vaccines continue to roll out?
Jeff Musser, Senior Vice President, Bellwether Enterprise
Here is what Musser had to say.
How well has the challenge done business during this pandemic?
Jeff Musser: The pandemic threw everyone out when it first struck. A year ago when things really got hot in America and we had lockdowns and stay at home orders, it was a pretty scary time for everyone. Most Americans didn’t know what was going on.
This has been transferred to the financial markets. Insurance companies, CMBS lenders, they’ve all taken a break. Agencies and banks may have taken a break of about a week. In general, however, they have not stopped lending. Agencies have promulgated COVID reservations and other stipulations. But he was fortunate that they remained active throughout the pandemic.
But in March of last year it was a shock to all of us. For a few weeks, the market was frozen. This lasted until the Fed stepped in and provided support for the market. It created confidence and brought back liquidity.
Looking back over the past 12 months or so, how resilient has the commercial real estate market been, in your opinion?
Musser: To be completely honest, it has been a story of two worlds. Companies that could work from home did better. Home orders have not had as much of an impact on their business. Most white collar jobs haven’t missed too much of a beat during this time. But much of the service sector has been hit hard. The places that were most affected by stay-at-home orders were hit very hard. Even though there is a light at the end of the tunnel with the vaccines and some of the treatments coming out, many of these companies are still not back.
If you just look at downtown Cleveland, you can see we’re a long way from where we were before the pandemic. I can look at the hotel parking lots here and see the difference.
I am, however, an eternal optimist. Assuming nothing crazy is happening with the variants and we continue to give out vaccines at a good rate, we hope that by the summer we will be much more normal than we have been.
How have the different sectors of commercial real estate performed during this period?
Musser: Multi-family, industrial, self-storage and prefabricated housing performed really well. There is a lot of capital on both the equity and debt side to chase those assets. Retail and hospitality, of course, have been affected.
The good news is that many lenders who were on a hiatus are starting to return to the market. Many still take a break, but many more are returning.
Are you seeing an increase in funding requests now that maybe six months ago?
Musser: I think the market is strong. I feel like there are a lot of groups on both the debt side and the equity side that are preying on the same types of asset classes. Industrial, multi-family, self-storage and prefabricated housing are the ones attracting the most attention from investors.
The rates have increased slightly from last year. But they are still relatively low. When we compare today’s rates to those of recent years, we are still in an attractive interest rate environment. I know some people are afraid of how fast interest rates have moved since December 2020, but they are still relatively low. Hopefully they don’t go up too much, too fast.
Is there anything else that makes you think or worry about the health of the CRE market?
Musser: There is nothing else at this point. If the rates are going up very quickly, it will slow things down. But other than that, I hope the vaccines continue to be distributed more widely and that we start to turn the corner on this pandemic. Hopefully the hospitality and service industries will start to return to normal.
Do you see signs of improvement in the retail and hospitality sectors?
Musser: I think we started to see them, especially in the warmer parts of the country. You see during spring break that there are people traveling and staying in hotels. It’s not like before the pandemic, but there has been a slight improvement here in Cleveland. There is excitement about the NFL Draft in Cleveland in a few weeks. What will this do for the local economy?
So, yeah, I think things are starting to improve. We have a ways to go, but it seems that in general people are starting to get excited and anxious about getting back to normal. People are excited to take advantage of things that we might have taken for granted in the past.
One more thing: When developers or investors come to you with funding requests, what are some of the factors you consider in determining whether you want to provide funding?
Musser: We take a close look at the property. Are we convinced by the property and its location? What trends do we see with this property? We also look at the sponsor a lot. Is it someone we trust and want to get involved with? If both of these boxes are checked, and if this is a deal where we can add value, we are happy to be working on that deal.