Page 26 - 2021 Spotlight NJ's Top Law Firms

24 MARCH 2021
ROUNDTABLE
HOW HAS THE COMMERCIAL REAL ESTATE LENDING LANDSCAPE CHANGED FROM EARLIER IN THE PANDEMIC?
be a strong year, with robust levels of activity across all sectors of the commercial real estate market.
JAMES S. VACCARO
CHAIRMAN, PRESIDENT AND CEO MANASQUAN BANK (WALL)
The commercial real estate lending landscape has evolved in some interesting ways during the pandemic.
As is normal at the commencement of any major economic/societal
disruption, the initial market reaction was more severe than the economic realities. Commercial real estate borrowers simply requested
forbearance ‘Because’ and, in many cases, lenders complied with the ask.
That scenario was predictable, logical and in retrospect prudent. Those actions served two primary purposes:
1. Provided the setting for a more frequent and open dialogue between the borrower and the lender.
2. Allowed for a needed time assessment to determine the potential positive impact of the stimulus package — namely, the Paycheck Protection Program loan.
That “maintenance” dominated scenario quickly shifted to one in which market opportunities and perils became more apparent. While the ‘stock’ of owner-occupied rose, that of the retail sector lost favor. Warehouse surfaced as being a strong prospective sector as the future of the entire supply chain management/ distribution management sectors brightened.
Simultaneously, underwriting focus
shifted a bit as well as the leases on tenanted properties not only focused on lease terms and duration but also particular attention being paid on tenant business market staying power.
RANDALL WILLIAMS
SENIOR MANAGING DIRECTOR, COMMERCIAL REAL ESTATE PEAPACK-GLADSTONE BANK (BEDMINSTER)
Early on, real estate lending froze. We thought the worst. Now, lending is increasing, with sales and refinancing opportunities showing movement. The hospitality industry is still suffering, and we could be a year from understanding the damage. Medical office, multifamily and grocery are improving.
Multifamily fared best. Early on, rent receipts were under pressure as landlords worked with tenants. We provided loan deferments, most of which have
returned to
performing. Now,
we understand
the pandemic’s
effect on rental
income, and we underwrite more conservatively,
but financing is possible.
Retail has seen slow payments. We look for lower leverage properties and take reserves for collection issues. Office has done better; however, remote working may cause companies to downsize as leases mature. Knowing the sponsor has become very important.
Lending activity should increase with a more widespread vaccine rollout, and 2021 should move forward slowly as the pandemic hopefully continues to diminish. RE
ALAN R. HAMMER
MEMBER, REAL ESTATE PRACTICE BRACH EICHLER LLC (ROSELAND)
Since the onset of the first pandemic in 100 years, lenders have once again embraced investment transactions, including apartment complexes
and industrial properties, mostly warehouse distribution facilities. Here, lenders are able to deal with facts, not fears.
Unfortunately, that is not the case for other real estate sectors.
While it is anticipated that there will
be demand for hotels, motels and
other hospitality facilities, no one can quantify what or when that will be. So there is hesitancy to commit to those areas. And with shopping malls, the major players have been defaulting on loans and have deeded those properties in many instances to their lenders. No great enthusiasm here, either.
With regard to office buildings,
there is a near-universal belief that there will be changes in the working patterns of many people, resulting
in less utilization. This is another uncertainty and there is no empirical data as to what the future will bring.
JON MIKULA
SENIOR MANAGING DIRECTOR
JLL CAPITAL MARKETS (MORRISTOWN)
Early in the pandemic, lenders pivoted to asset management mode to assess the impact on their portfolios and deal with forbearance
requests. That
activity mostly
focused on
retail, office
and hospitality.
Lenders that
utilized leverage
and/or the
secondary market to make loans were on the sidelines, as that market was frozen. Insurance company lenders saw their yield requirements blow out 100 basis points in tandem with the
corporate bond market. Some large money center banks also pulled back, which left local and regional banks to fill a much-needed void. Additionally, Freddie Mac and Fannie Mae continued to lend at historically low rates.
Now, so much has changed. Forbearance requests are behind
us. Insurance companies are back with historically low interest rates
in the sub 3 percent range. The
debt fund and CMBS markets are securing quality deals with similar yield compression. Banks continue to pick their spots. Freddie and Fannie have seen their annual mandate cut by approximately 15 percent, thus opening the door for other players to compete in multi-housing financing. We now have a very competitive lending environment.
CHARLES J. WILKES
PARTNER
MURPHY SCHILLER & WILKES LLP (NEWARK)
In our firm’s experience, the commercial real estate lending landscape has changed fairly dramatically from earlier in the pandemic. In
March 2020,
our lender and
borrower clients
alike put the
brakes on new
transactions.
Lenders
were focused
primarily on assessing risk in their portfolios and, in many cases, assisting their customers with obtaining PPP funding and/or loan modifications. Borrowers were similarly focused
on dealing with the fallout from COVID-19-related restrictions. Now, March 2021 is already proving to be remarkably different than March
2020. There is a renewed focus on
new transactions. Record (or near record) low interest rates are driving activity in the commercial real estate lending markets. And, the introduction of multiple COVID-19 vaccines has boosted a sense of optimism in the marketplace — that the worst is behind us and that life will return
to normal. We believe that 2021 will
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