1.  Pandemic Seen Creating Risk of Slower Commercial Real Estate Lending

“As 2020 nears its end, the pandemic is disrupting the origination and payment of commercial property loans even as borrowing rates boost interest in financing. The level of commercial and multifamily loans outstanding mounted all year as investors and owners sought to take advantage of historically low interest rates. At the same time, borrowers’ ability to repay outstanding loans shows further signs of stress.” (CoStar – Subscription Required, 12/23)

What you need to know:

• The amount of mortgage debt backed by CRE increased for the 33^rd straight quarter. Despite a significant decrease in acquisition funding, loan refinancings, particularly from government-sponsored entities, like Fannie Mae and Freddie Mac, helped raise total outstanding mortgage debt.
• The balance of delinquent commercial mortgages increased for the first time in three months in November, where delinquencies had been decreasing considerably from the double-digit-percentage levels throughout the summer. The combination of historically low interest rates and rising delinquencies coming into the new year combine for a mixed 2021 outlook.

Read the full article here.

2.  The 10 Biggest Retail Bankruptcies of 2020

“More than three dozen retailers, including the nation’s oldest department store chain, filed for bankruptcy this year, marking an 11-year high.

Pre-pandemic, several of these retailers were already teetering on the brink of survival. But the Covid health crisis pummeled the industry. Lockdown orders put in place in March to slow the spread of the virus turned into prolonged store closures for many businesses” (CNBC, 12/26)

What you need to know:

• Some of the country’s longest lasting retailers, including J.C. Penney, Neiman Marcus, and J. Crew filed for bankruptcy in 2020. The pandemic is seen by many to have accelerated industry trends, specifically the massive growth rate in e-commerce, allowing well-equipped firms like Amazon and Target to garner an even larger market share.
• Around 60% of the retail companies that filed for bankruptcy in 2020 listed more than $100MM in assets, compared with 50% of filings in 2019 and 36% in 2018.

Read the full article here 

3.  Retail Lending Remains Active Despite COVID Woes

“While retail has taken the brunt of the coronavirus’ repercussions, that hasn’t stopped refinancing within the sector. Although it is true that various stay-at-home orders hurt retail investment sales transactions in the early days of the pandemic, insurance companies and local bank lenders kept capital at the ready for retail refis.” (GlobeSt, 12/22)

What you need to know:

• “There is a myth that retail is unfinanceable today and that’s absolutely untrue,” said Christopher Drew, senior managing director, capital markets, JLL Americas. In fact, certain lenders like regional banks and private lenders never vacated the market but increased focus on underwriting well-located and essential retail asset types, such as grocery-anchored centers.
• As a relevant case study, the capital markets retail debt placement teams from JLL reported $542.83 million in retail financings since July. For all of the transactions, of which a little less than half were grocery-anchored centers, the average loan-to-value was 62% with an average interest rate of 3.96%.

Read the full article here.

4.  Federal Reserve Says Key Bank Lending Rate Will Be Phased Out by June 2023

“An interest rate that banks around the world use as a benchmark for short-term borrowing will be phased out and eventually replaced by June 2023, the Federal Reserve announced Monday.

The Fed was joined by regulators in the U.K. in announcing the plans for the London Interbank Offered Rate, commonly referred to as Libor.” (CNBC, 12/1)

What you need to know:

• According to the announcement from the Federal Reserve, banks and other lending companies should stop writing contracts using LIBOR by the end of 2021 and existing contracts using LIBOR should conclude by June 30, 2023.
• The Secured Overnight Financing Rate, or SOFR, will be the likely replacement for LIBOR. While LIBOR is reliant on bank quotes to establish an estimated rate, SOFR is based on observable transactions, or real-time data, in the Treasury repurchase market to develop a benchmark interest rate.

Read the full article here.

5.  Empty Hotels Get Second Life as Tiny Apartments During Pandemic

“Investors are buying hotels and turning them into rental apartments, in the latest sign of how the Covid-19 pandemic is changing the American real-estate market.” (WSJ – subscription required, 12/22)

What you need to know:

• The investors entering this space are attempting to take advantage of the hospitality industry’s downfall by snatching up foreclosed properties at deep discounts in fast-growing markets with rising demand for affordable housing amid the economic recession.
• Extended-stay hotels are seen as ideal for creating this type of apartment because of their smaller footprints and already have bathrooms and kitchenettes. While more conventional hotels require a more expensive renovation budget, it still often takes less than a year for rehab and is much faster than ground-up construction.

Read the full article here.