Q&A: Who’s Lending and Who Isn’t?

With all the pandemic-related bad news out there, it’s hard to believe that you can still secure financing in order to complete investment transactions. But most lenders are still lending, according to Eli Weisblum, director of capital markets for Ariel Property Advisors. Commercial Property Executive interviewed the New York-based mortgage broker about how the real estate capital markets are functioning since the need for social distancing has put the economy on hold. He addressed several of today’s most pressing questions: Who is lending? Who isn’t? How have the terms changed?

Eli Weisblum, Director of Capital Services at Ariel Property Advisors. Photo courtesy of Ariel Property Advisors

Which lenders are the most active today?

Weisblum: Debt funds, which typically compete for opportunities in the $10 million-plus category on a non-recourse and floating-rate basis, are still lending. Historically, they would lend against a business plan, but they have recently tightened their lending standards. They are currently lending across all asset classes, but limiting their exposure to hospitality and retail.

Private lenders are probably one of the more active lenders right now. They were typically, before this crisis, seeing deals that had issues. The client, for example, needed a bridge loan or a permanent, long-term loan for two years or three years. In this case, they are taking a step back and saying, “Hey, we can get into a bank-quality deal now and charge between 6 percent and 8 percent interest.” It might be a deal that no one in their right mind would think to take to a bridge lender, but they are now, because a lot of the payday lenders are closed or delayed. Those are great options right now.

Are balance-sheet lenders still active?

Weisblum: Banks on a national and regional level are still in the market for what they consider stronger assets, like multifamily and industrial. The industrial market is hot now because those tenants are making the products that are getting us through the current market. And they are moving away from the weaker assets, like retail and hospitality.

They are still considering cash-out refinances, but many lenders are requiring six to 12 months “PITI” reserves (principal, interest, taxes and insurance) to move forward. Normally, they would give you a 65 percent to 70 percent LTV cash-out refi. Now they are limiting that to—let’s say, 60 percent—because they want to make sure the clients have enough cash resources to cover it, should tenants start going dark on them.

Any lender across the board has found ways to cover themselves. Everyone is lending today, but they have taken some steps back or reduced their parameters or curbed what they’re doing. Then, within each classification you have extremes. We have some balance-sheet lenders who are not taking any new deals at all. We have some balance-sheet lenders who’ve said, “We are only taking new deals for existing clients” or, “Normally, we will only do 75 percent LTV, but now we will do 65 percent.” They all have individual restrictions, but for the most part they are still operating.

What about Fannie Mae and Freddie Mac in the multifamily market?

Weisblum: Fannie Mae, Freddie Mac and FHFA are still lending. I think last month they experienced a record number of loan applications, which caused their underwriting parameters to tighten a little bit on leverage and other areas. But new originations are still being funded through government buying power and the secondary market for agency mortgage-backed securities.

Who is not lending?

Weisblum: The one market that is not working right now or is in a holding pattern is the CMBS market, due to a dislocation of pricing on their securities vs. the spread that is required by bond investors in the secondary market. They have to wait for the market to stabilize, and it’s going to force lenders to have to reprice their deals currently in process. Any investor who had CMBS deals has seen their deals drastically re-traded or dropped in the eleventh hour, and that is not going to change until the secondary market activity picks up.

So really CMBS right now is not an effective outlet for commercial real estate borrowers unless the loan is extremely, extremely low leverage and a very well-located asset. And even then, it is still choppy. It is really area specific and lender specific in terms of how they are going out and perceiving the market.

What is your advice for borrowers?

Weisblum: There are many, many opportunities out there to get financing if your lender isn’t going to do it. We are very, very busy. I really encourage people not to get discouraged. It seems that we are in an environment where nothing can happen, but I would say this: There is a light at the end of the tunnel. More and more lenders are going to find ways to not only stay active, but also aggressive in a borrower’s perspective so they can be here afterward—not just during.