By: Kevin Oklobzija//January 22, 2021
By: Kevin Oklobzija//January 22, 2021//
The coronavirus pandemic has devastated the hospitality industry and exacerbated on some fronts the continuing decline of brick-and-mortar retail, but lenders still have their checkbooks open when it comes to commercial real estate investment.
You may not want to propose to your banker an upscale hotel project or luxury apartment building, but development ideas in most other sectors of the industry — including adaptive reuse — will very likely be met with enthusiasm to do business — at still-low interest rates.
“The failure of some businesses is going to open up a lot of opportunities to repurpose those properties,” John Klatte, vice president and market executive for Northwest Bank, said during a Thursday webinar on the state of commercial real estate lending hosted by the Upstate New York Chapter of NAIOP.
Klatte and representatives from other sectors of the lending industry said they are very much open for business, even as COVID-19 concerns continue to stifle economic growth.
“We’re still being aggressive and we want to put some money out there,” Klatte said. “We’ve had a lot of success over the past 12 months in financing medical facilities, assisted living homes, warehouse, manufacturing, distribution and lot of multifamily.
“There’s still some uncertainty in retail and office, but it’s not saying we’re not looking at those deals, we’re looking at them through a different lens and trying to take those on a case-by-case basis.”
Multifamily housing remains investment gold, according to Kyle Jemtrud, managing director at Greystone & Co., a lending, investment and advisory firm based in Manhattan.
“Not everybody needs an office, a retail center or a hotel room, but everybody needs a roof over their head,” Jemtrud said. “Multifamily is never going to dip as long as that demand is out there.”
Greystone initiated $17 billion in multifamily housing loans in 2020, with $5 billion of that arranged in collaboration with Housing and Urban Development (HUD) programs, he said. He doesn’t see any pullback in 2021, especially with workforce housing still in demand.
The sweet spot, he said, is Class B/B-plus apartments where tenants have solid income but won’t pay 60 to 90 percent more per month for the Class-A space.
Also considered a hot commodity: apartment communities with government-based contracts, because property owners know rent will be paid. Jemtrud said they are “even more valuable now, given the uncertainty in the economy and the rise in unemployment.”
What is no longer in high demand across the country: upscale.
“The Class A, highly amenitized buildings with smaller unit size are facing occupancy struggles,” he said. “People are wanting larger units and are willing to give up some of those amenities, given that everybody has been working from home.
“And at the opposite end of the spectrum, your more Class C properties have been facing economic vacancy conditions, where folks are in there with eviction moratoriums. There have been instances of people not paying rent for five, six months a time.”
However, for investors looking for existing multifamily properties in Rochester, good luck.
“There’s just nothing available,” said Joe Rowley Jr., senior advisor and managing broker at SVN/Realty Performance Advisors.
Which is disappointing for investors. The pandemic hasn’t prompted them to tuck their money away, but, just like the housing market in Rochester, inventory is scarce, especially in multifamily and industrial.
“There’s tons of money on the sideline wanting to jump in,” Rowley said.
Some of that money has been ready to pounce on failing hotels, but even that sector hasn’t come on the market. Higher end hotels have been hit especially hard by the COVID-19 crisis but lenders also have been a little more forgiving.
“Because of the attitude in the market, nobody’s looking to foreclose on anyone,” Rowley said. “It is definitely taking longer for properties that are distressed to come to market.”
It is not, however, taking additional time to get approval on loans to commence new projects.
“I consider it business as usual,” Rowley said. “We sold a $2 million building in Pittsford (for John Betlem Heating & Cooling in the fall) and they wanted to have the deal done by the end of the year and CNB (Canandaigua National Bank) was there every step of the way.”
Where lenders have given extra scrutiny is on mixed-use projects, Jemtrud said, “particularly with retail and restaurants are included.”
What’s especially good for investors: interest rates — hovering in the upper 2 percent or lower 3 percent range on a 10-year loan — probably won’t rise much, if at all.
“We really look at the Fed, and they released their meeting minutes in December and they expect rates to remain low through 2023,” Klatte said. “While rates are slowly creeping up a little bit, rates are still so low that it’s really cheap money to allow people to continue to invest.
“Until our economy really recovers, from a political standpoint and from the Fed standpoint, they’re going to try to keep borrowing rates pretty low.”
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