Lending was healthy earlier in the year. Then COVID hit and lenders took a break to assess the impact of the pandemic.
However, things could soon recover. In his most recent Capital Alert, Marcus & Millichap says: "Recent discussions with institutions and investors across the credit landscape suggest that the dynamic is changing rapidly."
M&M expects business to accelerate in the fourth quarter as lenders shift their priorities to reflect evolving opportunities and risks.
Asian and European corporations looking to invest in US open funds will fuel some of this growth. Banking and insurance companies are drawn to commercial mortgage loans, where they can get returns of 2.5% to 3%.
For their part, investment banks are leaning towards fixed-rate construction loans, which M&M said could help them close low-debt deals.
"These banks are willing to take the construction risk for a rate of return 50 to 75 basis points higher than the permanent loan," said M&M. "Some investment banks offer easy transition loans with a solid risk-adjusted rate of return, while others consider the preferred equity range pull."
For multinational banks, payment facilitation and covenant kickouts for non-essential retail and hotel properties have been given a higher priority during the pandemic. The major banks that offer bridging loans, term loans and home finance for their balance sheets are focused on helping current customers with strategically important transactions in tier 1 gateway markets and select secondary markets, according to M&M.
Institutions seem to prefer apartment buildings, bespoke industrial and pre-leased offices. As some of these institutional investors leave the market, wealthy and family investors are moving in, according to M & M.
CMBS lenders view COVID-19 as a temporary problem, but avoid mom and pop restaurants, movie theaters, gyms, and hotel renters. Not surprisingly, these lenders are prioritizing logistics, self-storage, and essential retail stores like grocery and drug stores. According to M&M, they are making more acquisitions and less disbursement refinancing.
The credit unions are migrating from retail and grocery stores in the Class B neighborhood to multi-family, mobile home, self-storage, medical and multi-tenant industrial properties. They are also interested in some single tenant industry. When valuing deals, they look at the liquidity, net assets and the rest of their real estate portfolio of guarantors.
Typically, the credit unions aim for a return of 4.5 percent on a standard fixed-rate loan with a term of five years. Their mortgage lending values are generally more conservative, but can reach 70 percent depending on the business and borrower, according to M&M.