Where CRE Liquidity Stands Today

Signs of the coronavirus’ impact on the CRE capital markets are mounting. Yesterday, the Wall Street Journal reported that SL Green’s deal to sell the former New York Daily News headquarters for $815 million has reportedly fallen through after Deutsche Bank backed out of the financing, which would have been packaged in a CMBS. The WSJ also reports that Citigroup may find itself stuck with a $2 billion loan it made to Blackstone and a MGM spinoff for their billion-dollar casino property transactions earlier this year that was intended for the CMSM market.

For these and other examples, the CRE market can expect lenders that rely on the CMBS market to step back. “There are few bids in the CMBS market today,” Walker & Dunlop CEO Willy Walker said in a webinar yesterday. “CMBS is predicated on calm interest rates and a lack of volatility There is no ability to price in this market.”

Signs of strain are appearing in other parts of the CRE lending market as well.

It is impossible to tell when conditions will return to normal but the industry is pushing hard on regulators to ease constraints to let deals flow.

The stimulus bill, for example, contains language encouraging regulators to forebear and allow lenders to work constructively with their borrowers, The Real Estate Roundtable CEO Jeff DeBoer tells GlobeSt.com. “Congress can’t tell them what to do, but the FDIC has issued a statement giving banks more leeway in modifying loans without having to label the loan as a TDR. There are efforts underway to get the NAIC to issue a similar statement for life companies. All of this is positive.”

The Real Estate Roundtable is urging property owners to work with tenants during this difficult time, DeBoer says. “And in turn, we are trying to make sure when property owners try to meet their obligation their lenders will allow flexibility.”

Lenders are continuing to quote deals but only for certain asset classes, Walker said during his presentation. Life insurance companies are still active but pricing has risen. Banks remain active, albeit cautious, while the GSEs are putting out new credit and making other changes, most importantly a forbearance program, as well as some reserve requirements on new loans that have required Walker & Dunlop to redo recent loans. “This is a very fast moving market,” Walker said.

GSE Forbearance

Both Fannie Mae and Freddie Mac have announced forbearance measures but they differ in some key respects, he said.

Freddie Mac gives borrowers three months of forbearance and the borrower needs to show distress in the property, although it hasn’t released a specific number for debt service. As part of the forbearance property owners cannot evict a tenant during that time.

Fannie Mae, by contrast, is establishing criteria that Walker believes will have a higher threshold for showing distress in the property. Borrowers are given three month forbearance when they cannot evict but the difference is that borrowers cannot evict until they have repaid everything. “So if you take a year to repay you do not have the ability to evict,” Walker said.

“If you go into Fannie Mae forbearance will be handcuffed in managing that asset,” Walker said. “I would urge borrowers to make those payments so they can maintain control of that asset.”