Gateway Cities

David Tobin, Senior Managing Director

In our latest video, David Tobin, Senior Managing Director, discusses expectations and trends he’s spotted in Gateway City loans (that’s New York, Los Angeles and San Francisco, in particular), and what this means for Loan Sales in 2022.

Visit our website for more information about Loan Sales and Real Estate Sales now.

Gateway city loans will continue to struggle in 2022 with low rates, extensions and restructures necessary to support portfolio performance. We see ongoing structural issues in the office, retail and hospitality sectors in New York, San Francisco and Los Angeles.

“According to Green Street, 70% of office workers will work remotely at least part-time within the next five to ten years…reducing demand for office space by about 15% and accelerating an ongoing deurbanization trend.”

Kastle Systems’ back-to-work barometer measures key card and fob system activity and shows a 40.6% physical occupancy of office across 10 top US cities with NYC and LA the bottom dwellers at between 36% and 37%.

Negative pre-COVID retail and banking trends were accelerated by the pandemic, particularly in urban locales.

CVS recently announced a 10% reduction in its 9900 store chain as grocery offerings and prescription sales continue to migrate on-line and over saturated infill locations right size.

Of 85,000 total bank branches today, nearly 3,400 closed in 2020. Urban located bank branch closures far outpace all other areas across all demographics because of competitive over-expansion pre-pandemic and continued digital disruption.

Manhattan sublease office space exploded during the pandemic peaking at 21.3mm sf in June 2021 compared to 8.2mm sf in 2016 and 11.6mm sf on the eve of the pandemic.

Finally, business travel continues to struggle with the biggest group oriented large format full service hotels, particularly in urban locations and less competitive select service hotels everywhere with PIP and cap ex issues.

What does this mean for loan portfolios? Persistently low interest rates have subsidized asset prices and gateway city loan portfolio collateral value for years. The specter of real inflation for the first time in a generation combined with real regulatory enforcement of asset quality and a real need for actual debt service payments will drive de-risking of bank balance sheets in 2022. We expect loan sale activity to continue to be muted but priced aggressively as liquidity rules. Hospitality loan sale offerings have been and will continue to be a robust bright spot in an otherwise anemic trading market. The wildcard? Inflated equity markets rapidly deflating and liquidity disappearing.

RESEARCH BRIEF | Marcus & Millichap

Published January 2022

Retail Sales Have Tailwinds Heading into 2022 Despite Soft End to 2021

Consumers step back in December. Core retail sales dipped 2.5 percent last month as spending that usually occurs closer to the holidays was spread over a longer shopping season. Furthermore, the highly contagious omicron variant of COVID-19 elevated case counts, keeping more people at home. Retail sales, however, are up 16.5 percent from one year ago and consumers still have more than $5 trillion additional funds in savings and money market accounts.

DOWNLOAD THE FULL BRIEF NOW BY CLICKING THIS LINK.

 

 

 

 

 

 

22_01 Retail Sales Research Brief

Accurate Loan Pricing

David Tobin, Senior Managing Director

In this new video, David Tobin, Senior Managing Director, describes accurate loan pricing and what to look ahead at in Loan Sales for 2022.

Visit our website for more information about Loan Sales and Real Estate Sales now.


Accurate loan valuation and pricing is critical for many reasons:

1. It sets expectations appropriately between buyers and sellers and allows for objective evaluation of whole loan bids
2. It properly sets PCI marks, reserves against impaired loans and allows for a release of reserves when the opportunity presents itself.
3. It is critical for mergers and acquisitions and loan portfolio investment decisions.
4. …and It ensures accurate movement of loans into a held for sale status

Model complexity, however, doesn’t enhance reliability. Pricing accuracy increases for three basic reasons:

1. The volume and frequency of loans and portfolios priced, including large data set evaluations for entities like the FDIC, FHLBs and HUD
2. Using Transaction Tracker intelligence to triangulate recent actual note sale results against financial reporting and publicly available data in an opaque marketplace
3. Marking to market collateral values in real time

Accurate qualitative data from comparable loan sale, investment sale, and financing transactions properly validates quantitative financial models. This guards against confirmation bias that occurs when flexing sensitive model assumptions that can exaggerate model outcomes.

What does this mean for loan portfolios? In 2022, regulators expect CARES Act 4013 designated loans to either return to the line or be properly risk rated as a TDR. Understanding true loan value for these assets in an opaque, fast paced and volatile marketplace can mean the difference between booking gains or incurring losses on difficult to price assets. PCI loans marked before or during COVID very often have embedded gains that should be monetized at high water mark pricing. As the Fed finally begins its tapering, selling risk into frothy markets at or above intrinsic value will be a winning strategy for 2022.