From Steve Buchwald, Managing Director, Debt & Equity
March 24th, 2020
Lending Update | March 24, 2020
Bridge Lending Update:
Appetite drastically varies by lender right now. They can be classified into the following groups:
- Debt Funds with Balance Sheets / Unlevered (No Repo):
Status: Open for business, being more cautious on deal profile / leverage but still pricing generally at historical lows – all in rates are really the thing to look at as there is no parity in this sector. In general, expect widening in rates due to where perm market seems to be pricing.
- Debt Funds (Repo – Not Margin Called) / Mortgage REITs
Status: On hold for 30-60 days (possibly longer). Doing triage on existing loans or uncertain how to price deals. Some Mortgage REITs say they are still lending, however.
- Debt Funds Dependent on CLO
Status: Completely shut down.
- Debt Funds That Lay Off a Senior
Status: These lenders vary in their appetite right now. Some senior lenders are still active on certain product types, while others are on pause. Non-recourse senior construction lenders still seem to be actively lending.
- High Yield Lenders (Family Office or Offshore Account)
Status: Aggressively pursuing deal profiles they would usually be priced out of.
Perm Lending Update:
- Insurance Companies
Status: Pricing is all over the place due to the volatility in the corporate bond market and varies by lender as much as 75 bps on the same transaction. The spread between BBB- and AAA credit is the widest ever.
- CMBS Market
Status: In turmoil with spreads widening more than anyone could have imagined a few weeks ago. Deals that were app’d months ago have been re-traded to all-in rates in the ~4.50% range that would have priced in the ~3.00% range a couple of weeks ago. This will have a ripple effect in spreads and pricing throughout the industry.
- Agency Debt
Status: Still active but experiencing record inflows and processing delays.
Approximately 1/3 of the lenders are not lending right now, 1/3 are being highly cautious and more conservative, and 1/3 are pursuing deals at higher rate profiles. Expect new deals to execute at rates similar to those from 1.5-2 years ago at more conservative leverage levels.
Lenders are now preferring deals with less complication and story to those that are more difficult to understand and underwrite.A big outstanding question that remains is how deals will be closed right now given the difficulty doing site tours, inspections, etc.
Sectors hit hardest by recent events are (in order): hospitality, retail, senior and student housing, office, industrial, multifamily. Lending appetite will likely go in the opposite direction with hospitality and certain types of retail being the most challenging to finance in the short term. Oil markets are also highly impacted.