Resilient. That’s how Joseph Platt, senior vice president with the Kansas City, Missouri, office of Grandbridge Real Estate Capital, would describe the commercial financing business today.
Yes, this industry has faced challenges because of the COVID-19 pandemic. That’s no surprise. But Platt said that requests for financing have remained steady throughout most of the pandemic. And today? The commercial finance business looks healthy as the last few months of 2021 arrive.
Platt said that any slowdown in financing requests after the start of the pandemic was short-lived.
“Many lenders did retreat to the sidelines at the beginning,” Platt said. “There was probably a two- to four-month period, depending on which lender you were talking with, when lenders took a pause. But after that initial period when things were locked up and frozen, we have been very fortunate. After everything unlocked again, we have been very pleased with the overall production we’ve seen during the last 16 or 17 months.”
Platt said that there remains a strong appetite for commercial mortgages through Fannie Mae, Freddie Mac and life insurance companies. The CMBS market remains a viable option, too, he said.
“I wouldn’t say we’ve seen a rise in business, but our business has been very strong and steady since mid-summer of 2020,” Platt said. “Interest rates are still holding steady and we have seen credit spread yields that are also quite attractive. That is a sign of a competitive market.”
It’s not surprising that industrial and multifamily make up the greatest number of financing requests.
On the industrial side, consumers continue to flock to the Internet to buy everything from electronics and toys to groceries, sporting goods and cleaning supplies. The pandemic has only boosted the rise of online shopping. As this trend continues, it’s forcing companies to open new distribution centers and warehouses across the country. The developers building these facilities need money to fund their projects.
And multifamily has remained steady during the pandemic, especially as housing prices continue to rise, making it more of a challenge for many potential buyers to purchase a home. These buyers have to live somewhere, and many are choosing to rent.
“Apartments and industrial are getting most of the love right now,” Platt said. “Apartments have remained the darling asset class. And industrial is doing so well because consumers have changed the way they shop, turning to online shopping more often. When it comes to acquisition financing, the majority we are seeing today is in the apartment and industrial space, with office and retail, probably in that order, third and fourth.”
In more good news, Platt said that lenders are disciplined today and are making sure not to make risky decisions during the pandemic.
“Just because capital is available today doesn’t mean that we are back to the early 2000s underwriting where people were basing decisions on a pro forma basis or that lenders are offering a whole menu of interest-only options,” Platt said. “The lending and credit environment is very disciplined today. None of the lenders we work with are acting in a haphazard way. Everyone is being smart, even though this lending environment is fast and competitive.”
Platt did say that Grandbridge is seeing a rise in refinance activity. This makes sense because of the high number of 10-year loans that borrowers took on in 2010, 2011 and 2012. Those loans are now reaching their maturity, so it’s not surprising that refi activity is increasing.
Platt said, too, that he expects demand for commercial financing to remain steady throughout 2021 and into next year.
“With rates as low as they are and with the amount of capital that is hungry to find deals, I do think demand will be steady,” Platt said. “When investors are looking at commercial assets versus other investment opportunities, commercial real estate looks like a good relative value. The yields are still very attractive. And all the while, you get a tangible asset when you invest in commercial real estate. If we have made it through the pandemic and a fairly volatile election year without demand dropping, it is our view that both debt and equity capital are abundant enough to fuel this steady amount of business we are seeing.”