10 Certainties as Lenders Return to the CRE Market

September 01, 2020 • Author: Howard Taylor

1. Their lane will be narrow and match their most successful past financings in their chosen sector.

2. Borrower priority will be emphasized. Existing borrowers with good track records will be accommodated first.

3. The experience level and specific property type of the borrowers will weigh heavily.

4. Management, both sponsor and/or outside management firm, will be vetted closely to align with the loan property type.

5. Greater discernment of contractors for ground-up or heavy lift. Top tier and mid-range contractors will be preferred by lenders. Bonding capacity will be reviewed as a metric, but bonding major subs may be negotiated.

6. The sponsor’s track record during the pandemic and how they handled themselves will be scrutinized.

7. Accuracy of numbers and matching documents will be a test of experience.

8. Several property types will not receive much, if any, attention in the short to mid-term. Those property types include hotels, congregate care, student housing and unanchored retail.

9. Housing (apartments and subdivisions) will continue to dominate lender demand. Industrial as well as Multi-tenant office will be second favorites in the lending space, mitigating rollover risk as much as possible. Single-family rentals of large subdivisions will grow substantially.

10. Equity will play an even larger role in the short and mid-term. Both ground-up and existing properties will grow in PACE bond debt acceptance in the capital stack, much like CDD Bonds have.