Capital Alert: Keep an Eye on the Horizon

February  5,  2021

Keep an Eye on the Horizon
The market is showing renewed signs of optimism about recovery, though uncertainty abounds. The outlook clearly depends on vaccinations spreading faster than new coronavirus variants. But there is no shortage of lending for the right opportunities. Banks, insurance companies, pension funds, REITs and private investors are actively seeking to deploy capital for stabilized assets with experienced sponsors at attractive interest rates. With volume down significantly last year, lenders have ample funds to allocate, and insurance companies, in particular, may be willing to take on more risk to get their capital working.

 

A second stimulus package is coming, with Senate Democrats working to advance President Biden’s $1.9 trillion plan in favor of a slimmed-down version proposed by Republicans. While the Congressional Budget Office this week said the economy is improving faster than expected, and growth could return to its pre-pandemic level by mid-year, the labor market is unlikely to fully recover until 2022.

After nearly a year of isolation at home, people are eager to resume social interaction and experiences.
It’s too early to suggest that office, retail and apartment properties are undergoing a permanent structural change, though creative destruction will impact some asset types in certain geographies. After nearly a year of isolation at home, people are eager to resume social interaction and experiences — collaborating in offices, congregating in restaurants, meeting clients at convention hotels, enjoying tourist destinations. There are a few notable green shoots, including signs of life in Manhattan retail properties. Once vaccines are widespread, a tsunami of pent-up demand and savings will be unleashed, including a portion of the more than $20 trillion stashed away in money market mutual funds and savings deposits.

 

In terms of transaction activity, longer-term perspective paints a more upbeat picture. While deals declined year-over-year in Q4 2020, the period actually exceeded activity in 2006, the height of the last real estate cycle, according to a new report by Marcus & Millichap research. Capital is aggressively seeking distressed deals, which continue to be more elusive than anticipated.

 

Watch for some banks, insurance companies and CMBS to be more active in multifamily lending on A and B+ properties, since Fannie Mae and Freddie Mac have reduced lending caps and are allocating more of their capital to affordable housing. Structured debt players are gravitating from urban centers to secondary and suburban markets in search of opportunities.

 

In short, the disruption could continue for another six to eight months, so keep your eyes on the horizon. Amid all of the uncertainty, MMCC continues to close loans across all asset classes, leveraging our unparalleled network of lender relationships. Please reach out to an MMCC advisor for the latest updates and guidance on all your capital markets needs.