While capital markets are moving again, credit activity has been severely impacted by the pandemic. Trade credit generation is expected to decrease by 40% this year compared to 2019.
"While capital markets have certainly been disrupted by the COIVD-19 pandemic, healthy activity and allocations from all major sources of credit remain, albeit with lower expectations for volume and a more conservative appetite for leverage and asset classes." J. D. Blashaw, VP at Real estate financing of the MetroGrouptells GlobeSt.com. "According to the Mortgage Bankers Association, commercial and multi-family loan volumes are projected to decline 40% in 2020 compared to 2019 when origination exceeded $ 600 billion, a high point since the last global financial crisis."
Now, lenders are focusing on managing arrears and mitigating bad debts. Multi-family, office and industrial loans are performing well and will remain current. Blashaw says: According to the Mortgage Bankers Association, the following loans in various asset classes were current as of June 20:
Multi-family house 98.1%
Multi-family rental collections have been strong through the pandemic, which has helped fend off arrears. Government incentives also played a role. "The National Multifamily Housing Council reported in June that 96% of tenants made their payments unchanged from last year," says Blashaw. "In this low interest rate environment, there will be abundant capital and competition for high quality apartment buildings and industrial properties that are more selective for office and retail and challenging for the hospitality industry until the market is grounded."
On the other hand, retail and hospitality industries are much more exposed to defaulted loans. "The data clearly shows that the stress occurred as expected in retail and hospitality, even though those assets totaled only 13% of total origins in 2019," says Blashaw. "After a sharp rise in hotel arrears in April and May, crime rates flattened out in June when some vacation trips returned."
With healthy rental income in homes, offices and industrial real estate and supportive government programs, lenders are familiarizing themselves with new origins of credit. "In the first phase of the COVID-19 crisis, the CMBS market was completely frozen due to a lack of liquidity in the bond market," says Blashaw. "As the various government stimulus programs began to have a broad impact on the economy, including specific intervention by the Fed to extend the TALF credit facilities to old CMBS, the conduit lenders came back to the market with new issues and more efficient pricing."