Today’s debt assignments must be approached with a new framework and mindset. Since the onset of the COVID-19 pandemic and the economic disruptions it has caused, the lending markets have experienced a reset that hasn’t yet been fully sorted out.
We have seen a wide range of disparity between quotes today, compared to the robust market before the government ordered lockdowns. This Covid environment is one in which we have come to expect the unexpected.
In the current market, some lenders are remaining on the sidelines and are not quoting deals. If they are dipping their toes in the water, they are doing so cautiously. Yet, other lenders are still quoting fairly aggressively because they have confidence in the overall real estate market despite some of the uncertainty. The current lending environment requires persistence and patience to match debt assignments with the right capital source.
What we know for certain is borrowers seek information and knowledge. They are increasingly counting on mortgage bankers and brokers to guide them to make informed decisions and navigate complicated capital markets. They understand we provide the widest array of lending sources and have access to critical information to uncover the best deal for them.
It has become paramount for us to carefully explore all capital sources in this environment because each lender has a different read on the market today. That has created a landscape where it is more challenging to make assumptions about lenders’ behavior. The result is each financing package must be customized and carefully presented to tell the story of each unique property and each unique borrower. So too are lenders continuing to rely on us to deliver strong sponsors and deals.
The role of mortgage brokers has always involved gathering information about how a market is performing and staying on top of lending sources and programs. This ensures we deliver the best financing options to meet sponsor’s needs. It is vital to know if a lender has changed its programs, has a particular interest in an asset type or is hot or cold about a specific market. In today’s Covid era, all of those considerations are significantly amplified.
An example of how shifts have occurred is the retail property sector. Recently, I marketed a very conservative loan request for an unanchored strip center in Arizona where the sponsor sought financing to refinance a previous loan placed 10 years ago. Despite all the merits of the loan request, which included strong national tenants and a strong borrower, securing new financing for this low-risk transaction required us to look far and wide for the right lender that believed in the borrower and the property.
In addition to casting a wide net, it is imperative to tell the Covid story for each asset too. Every market, property and borrower has a different story that must be shared. Not all properties have been impacted the same. That means borrowers must take the time to explain such things as rent abatement, deferrals, or where they now fit into the new marketplace. An asset could be well positioned in the new era with tenants that are thriving for one reason or another. Recently, I financed a single-tenant office building where the tenant was flourishing as it specialized in editing content for content providers to stream to viewers. To get lenders comfortable today, it requires us to dig deeper into the stories of the tenants to find bright spots not obvious by only looking at a properties’ rent roll.
We are increasingly being asked to explain whether or not borrowers have received a PPP loan, and if so to explain the circumstances. Lenders are keen to find out early the strength and financial wherewithal of sponsors and tenants alike. Many of the questions being asked today didn’t come up before Covid and it is extending the loan process. It is also causing borrowers to adjust to accommodate those requests and meet those new requirements.
The impact of Covid has been different for each type of property and location. Some properties and markets have been hard-hit as travel has been restricted for both tourism and business trips. But there are examples of properties that have been impacted early at the Covid-19 onset, but then their performance bounced back. I’m currently processing a multifamily loan in a National Park resort area that initially saw demand drop due to shelter-in-place orders. However, over the summer, as people started exploring the great outdoors in socially distanced excursions, the property saw occupancy increase and rents soar. It is a compelling example of how each properties’ story must be articulated for lenders, so they understand the unique characteristics and strengths of the asset.
Ultimately, our relationships with both borrowers and lenders are being honed into stronger, closer and deeper partnerships, as a result of the pandemic. We are asking questions of borrowers we’ve never needed to ask before and lenders now expect us to uncover and deliver information they previously didn’t require. In the past, seasoned mortgage brokers knew what lenders needed to approve a transaction. Now, there is no exact recipe of what is needed for each deal and there will likely be an ongoing dialogue of follow up between lender, broker and borrower to ultimately close a transaction. That requires us to expect the unexpected, remain calm and embrace the new batch of steps as expected elements of today’s deal making.