About four months after the COVID-19 pandemic disrupted the US economy, capital markets have stabilized to a new normal, according to a report by broker Marcus & Millichap.
Lending is slowly increasing, the report said. The capital flows to borrowers with established track records, cash in the bank, and "high quality assets with secure cash flows."
"We are seeing more and more lenders returning, even though no one would call it a borrower market," the report concluded.
The easing market is attracting borrowers looking to refinance while interest rates are near historic lows. In July, Marcus & Millichap Capital Corp. completed more than half a billion dollars in commercial real estate loans with 79 lenders. The strict subscription conditions that have shaped the market over the past three months are easing somewhat.
It is unclear whether the increasingly cheaper credit options will continue to be available in the short term.
"Infection rates are rising, lockdowns are being renewed, and the US is grappling with the steepest economic decline since World War II," the report said. While July employment numbers were better than expected, 12 million Americans have lost their jobs since the pandemic and more than half of US households reported a loss of income, according to a survey by the Census Bureau.
Also, local governments have projected $ 360 billion in lost revenue between 2020 and 2022, and Congress and the White House remain stuck on what should be included in a new aid package.
However, the report notes a "selective" increase in lending across a number of branches, including debt, life insurance and commercial mortgage-backed securities, with shorter-term bridging loans becoming available.
"As borrowers' expectation of reserve debt service increases, many lenders have begun to reduce the size and terms of these contingent liabilities," the report said. "Finding free capital across a range of asset classes and lenders (other than the agency and the resurgent CMBS) is proving difficult."
Fannie Mae and Freddie Mac support the market with rates between 2.5 and 3.5 percent. Picky lenders prefer critical retail space for single tenants, high-end industrial locations, and self-storage properties.
Apartment buildings "have proven to be more resilient than originally expected" and there is hope in the industry that President Trump's Aug. 8 order to provide an additional $ 300 a week in unemployment benefits will help continue this trend it in the report.
"Given the rock bottom interest rates, commercial real estate will continue to be an attractive long-term investment," the report concluded.