Economic Freeze Creates Uncertainty

Will the Commercial Real Estate market decline more precipitously than it did during the Great Financial Crisis?

Will the Housing market collapse the way it did during the GFC?

These questions are just now being seriously asked as lenders and real estate investors attempt to adjust their financial valuation modeling. Assumptions being used in these models drastically changed in a matter of weeks. As potential buyers of income producing property adjust their analysis to include:

  • lower effective rents

  • increased vacancy and collection loss

  • increased operating expenses (rigorous cleaning)

  • additional equity requirement by lenders

  • increased cost of debt service

Lenders for all property types have increased their rates and underwriting is significantly more conservative with stronger debt covenants on CRE loans. For certain property types like hotels and retail, lenders have stopped making loans until there is a better level of certainty with price discovery. Many lenders are also preparing for the onslaught to come of borrowers requesting forbearance on their payments as a result unable to pay rent.

This will lead eventually to a reevaluation of all real estate.  


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