|We are seeing renewed exuberance over the business climate, with both rational and irrational aspects. First, $1.9 trillion in fiscal stimulus is now flowing into the economy, and more than 20 percent of Americans have received at least one dose of a COVID-19 vaccine. Amid easing restrictions, Goldman Sachs predicted an 8.1 percent jump in gross domestic product (GDP) this year – the largest economic spike since 1951. Unemployment would fall to 4 percent, the bank’s economists said, and inflation would remain muted at 2.1 percent.
The Federal Reserve offered a more cautious forecast for 2021 after its meeting Wednesday, projecting a rise of 6.5 percent in GDP, unemployment of 4.5 percent and inflation of 2.4 percent. The 18 officials at this week’s meeting expect short-term rates to remain near zero through 2023, but seven of them now say rates could begin to rise in 2022 or 2023, up from five in December. The yield on the 10-Year Treasury rose to 1.67 percent following the news.
Rational lending is beginning to accelerate, with capital flowing to grocery-anchored shopping centers, quick-service restaurants and other essential retail, as well as multifamily, self-storage and industrial assets, with strong competition for the latter. Hotels remain challenged. More than ever, lenders are focused on borrowers’ track records and performance of other properties in their portfolios. While financial strength is very important, lenders are specifically looking at how borrowers handled the pandemic. Especially in the retail and office sectors, lenders are seeking detailed information about requests for rent deferrals.
Institutions are taking a fine-tooth comb to rent rolls, scrutinizing valuations, and requiring significantly higher loan-to-value ratios to inoculate themselves against risk. Underscoring concerns in the office sector, Fitch Ratings is examining how the work-from-home revolution is impacting commercial mortgage-backed securities (CMBS) credit ratings.