There’s no doubt that the COVID-19 pandemic has made life more challenging for commercial real estate professionals, whether these pros are working in development, brokerage, finance or any other area of the industry. But despite the pandemic, CRE companies across the Midwest are still financing and closing deals, building new industrial facilities, selling apartment buildings and planning new mixed-use centers.
An example? The Minneapolis office of Grandbridge Real Estate Capital has remained active throughout the first half of 2020, even as the country dealt with business shutdowns and stay-at-home orders.
In fact, the Minneapolis office is leading the 23 Grandbridge production offices across the country in the placement of debt and equity in 2020. Last year, the Minneapolis office ranked second in this category.
What’s the secret to this office’s success? We spoke with Tony Carlson, vice president in the Minneapolis office, and Dave Rasmussen, senior vice president in the same office, about this branch’s success even during one of the most challenging CRE markets in memory.
I know this is a broad question, but how has your office remained so busy during these tough times?
Tony Carlson: One of the bigger reasons for our success is our access to all the capital markets. Every lender is available to us. We are a direct lender for Fannie, Freddie and HUD. We have access to life insurance companies, debt funds and banks. We also have our own lending program from our parent company, Truist Financial Corporation, which is the 6th largest publicly traded back in the country.
Its’ nice when we are meeting with prospects or clients and we can tell them all the debt sources we have available. There isn’t anything we can’t find or place for our borrowers given all of our tools.
Dave Rasmussen: Besides debt, we are also raising equity for our clients today. Many borrowers are rich in deals and short of cash. We are helping them raise equity to do their transactions, too. That is also keeping us busy these days.
Are either of you surprised at how the commercial real estate is soldiering on even during COVID and the resulting economic fallout?
Carlson: I’m not really surprised. I entered the business in 2005. We had a few good years right away and then a downturn starting in 2008-09 That downturn was driven by over-leverage and the capital markets not being as efficient as they are now. This current downturn happened when real estate was very healthy. Commercial real estate is healthy, and this is not an over-leverage situation. People and properties have the ability to weather the storm.
Rasmussen: We are still very early in this cycle. But in the short turn here, much of the commercial real estate industry has held up well. As we go on longer, the ones that will continue to do well are apartment, industrial and grocery-based retail. The ones in question are office, unanchored retail and restaurants. Of course, in Minneapolis there are also concerns about downtown.
Our company has told us that we will back in our downtown Minneapolis office Jan. 31 of next year. We are just one company, of course, with about 70,000 employees. There are some of us who have to work in the offices now. They are already back. The rest of us, though – and this is the majority of us – have been working remotely for quite a while. It’s the same way with other companies. I think this work-from-home period will have a long-term impact on the office market.
Many of the commercial pros we’ve interviewed have said there might be a flight to the suburbs, at least for the short-term. Do you see this happening?
Rasmussen: I have a client who owns industrial space. He is getting calls from companies asking for and seeking what they consider more COVID-free spaces. They want free parking in suburbs where people can walk into their own space of the first level in an industrial building. They are willing to have it built out for office or flex space. They want to control their own environment.
Carlson: Ultimately, time will tell. No one has a crystal ball to predict what will happen. But part of the allure of downtown is all the activity and the people. If a lot of those things go away, what is left of the appeal of downtown?
How about commercial financing? Are financing sources still active today?
Rasmussen: In mid- to late March, everyone put on the brakes. They wanted to see what was going on. The stock market was going down. There were concerns about unemployment. Everyone wanted to take a breath and see what would happen. We had just been in San Diego for the Mortgage Bankers Association convention. We had 22 meetings in two-and-a-half days. We met on the hour with lenders, most of which were life companies. Everyone told us 2019 had been a record year for mortgage production. They had more money scheduled for 2020.
Everyone had great expectations and plans for 2020. Then it got sidelined. Some took a week or two, maybe a month, off. Now 95 percent of them are back active. My personal opinion is, there still are lot of funds that have not been placed. There is a pile of cash sitting there waiting to be dispersed. I think we will see more competition in the second half of the year. Some life companies are quoting deals in the 2s for the right deal and the right leverage.
Carlson: Fannie, Freddie and HUD were always active. Now the life insurance companies are back. When they came back, they eased back. They had floor rates of 3.5 percent then 3.25 percent. Now with the right deal and the right sponsor, they are offering floor rates in the 2s. In March and April, seemingly every phone call carried bad news. Now borrowers and lenders are optimistic, and most phone calls have some good news.
The pandemic has changed the way CRE professionals work. What has your work life been since the work-from-home orders came down?
Carlson: It’s been pretty easy for me to work from home. At Grandbridge, we have all the human resources and tech support we need. We can plug into our laptops and, just like if we were at the office, gain access to our files. I do miss the camaraderie of being downtown and being with our team. I miss celebrating the successes with the team. But the actual work has been seamless for me.
Rasmussen: I had worked remotely in the winter every Wednesday. In the summers, I did some remote work on Thursdays and Fridays. So I was already used to working from home. I have my two computers and bag with me whenever I leave work. Every time I walked out the office door, I was prepared to work remotely.
How has the pandemic impacted the way deals are closed today?
Rasmussen: I would say that things are slower in general. It is taking longer to close deals. I think that’s the case with everybody. I was talking with a lender last week and he said that things have ground to a bit of a halt for him. We are trying to help some of our lenders who are caught up in the process. But we are still executing deals. That is what counts.
Carlson: The team that we have has certainly helped. We have a very entrepreneurial, very hard work mentality. Everyone is on an equal playing field helping each other out. We haven’t missed a beat. It’s so important to have a good team, especially in this uncertainty and pandemic. That is the most critical element to have if you want to succeed today.
The team consists of Jeff Witt and Joe Lindberg on the underwriting front supporting six producers including ourselves are Brett Olson, Ben Fazendin, Chris Perry and Matt Halberg.
I know this is a challenging question, but when do you think we’ll see the commercial real estate market return to some semblance of normality?
Carlson: Multifamily is almost normal right now. Our lenders are normal for the most part now as opposed to back in March. We have made a lot of strides from March until now. I wouldn’t be surprised to see the first or second quarter of next year be back to a more normal environment for other property types. A vaccine would be a huge win. There is going to have to be a medical achievement for a segment of the population to be comfortable going back downtown, being in elevators with people and passing 200 people in the Skyway on the way to lunch. Some are OK with that now. Some aren’t. Until everyone is, we don’t get completely back to normal.
Rasmussen: No one wanted to be the last to close, and no one wants to be the first to open. I’d say we need to plan for the worst and hope for the best. The liability is too great for companies right now. Everyone wants to know we are good to go. Personally, my kids are in San Francisco. They are two professionals. One of them has a student entering kindergarten. They are taking turns from their jobs to sit with him. The school is expecting him to participate in a five-hour Zoom day. The parents have their calls and work to get done, too. Our office has a lot of young people. It is hard on them. It places tremendous stress on top of the normal stresses that come with trying to get deals done. Until that goes away, we won’t be back to normal.
