Trends of the Week

Jerome Powell, Chair, Federal Reserve. Image courtesy of Federalreserve via Flickr

Commercial real estate executives endured another week of non-essential business closures and overall economic disruption brought on by the coronavirus pandemic. But stakeholders still seem comforted by two notions: This is a temporary condition and, unlike 2008, this is not an “economic recession.” Here are three key trends that shaped the news this week:

1. Reopening the Economy Is On the Table, But It Could Be Just Talk

As the president of the United States and governors start to plan for reopening the economy, commercial real estate owners started thinking about how their properties would operate under “the new normal” since social distancing and increased cleanliness regimens are expected to continue even when non-essential businesses resume. Returning to normal, however, is still a tentative reality in most places. Just days after joining an alliance with Connecticut, Rhode Island, New Jersey and Delaware to coordinate reopening, for instance, New York’s Governor Andrew Cuomo extended the non-essential ban until May 15.

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2. Rent Deferment is the Buzz for Investors, Tenants and Lenders

Landlords are increasingly concerned about residential and commercial tenants’ ability to pay rent and how it will impact their ability to cover expenses and loan obligations. April receipts were sketchy, though not as bad as some landlords thought. But with many buildings still shuttered and another 5.2 million workers filing for unemployment benefits last week, May looks troublesome. 

Landlords, therefore, are talking closely with tenants to work on deferment–not forgiveness–plans. But they must also consult with their lenders to make sure they don’t violate the terms of their loan or their own forbearance agreements.

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2. The CRE Mortgage Market Is Stable…For Now

There is new stability in the commercial real estate market now that the Fed has expanded the Term Asset-Backed Securities Lending Facility or TALF” for AAA-rated CMBS and some CLO paper. Meanwhile, lenders are willing to work with proactive borrowers on forbearance, and most , with the exception of conduits, are still lending to strong sponsors albeit with tighter underwriting standards. But as the economy continues on pause, there is growing concern about potential defaults, particularly in the hotel and retail property markets, and the damage that will do to the commercial mortgage market.

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