Profimex Market Review Update – November 29, 2020
The Pandemic Could Do Permanent Damage To Hotel, Retail CMBS Markets
As Covid-19 decimated commercial real estate, specifically retail and hospitality properties, many strong cash flowing properties are struggling to service their debt. As a result, commercial mortgage-backed securities backed by retail and hotel properties have gone delinquent at a historic pace in 2020. Their bond holders are set to have large losses at the current pace. “In terms of what lenders are going to do, it’s hard to say because we just got great news about a vaccine,” said Amrik Singh, an associate professor at the University of Denver’s Fritz Knoebel School of Hospitality Management. “So it’s a waiting game to see how long they can hold out, whether through doing another forbearance or modifying the loan.” Many lenders are opting to modify loan terms or extend payments instead of sending these bonds to special servicing units to begin the foreclosure process on the underlying assets.
Capital Will Be Available to Meet Borrower Needs in 2021
While lending activity slowed immediately following the global pandemic, as the economy begins to recover, along with a promise of 3 vaccines in early 2021, lenders have begun to grow more confident in being able to provide a strong capital allocation for borrowers in 2021. From a demand stand, low interests continue to drive appetite for debt financing. “Although lenders will likely remain conservative in their underwriting, there will continue to be ample capital sources available in 2021 to meet investor demand,” Stephen Stein, managing partner at Tauro Capital Advisors, tells GlobeSt.com. “With election uncertainty fading and promise of a vaccine on the horizon, lenders will remain diligent in their capital allocations for 2021.”