What Does 2021 Look Like for Lenders and Borrowers?
By Lisa Brown
To be sure, 2020 was one for the record books in many respects. However, it was also a time for solidifying relationships and pivoting to wider opportunities.
Connect Media recently chatted with principal/managing directors Shahin Yazdi and Jonathan Lee of George Smith Partners to gain some insights into the year that was, where the opportunities were, how they helped clients creatively structure financing and what may lie ahead for 2021.
Connect Media: 2020 was one of the most turbulent years in CRE, ever. How did lenders and borrowers fare?
Yazdi: In general, in the very beginning, we certainly saw a slowdown. Acquisitions were down and still remain down, but we found it to be a great time to really solidify our relationships with borrowers and lenders. In March and April when the coronavirus began in the U.S. and the shutdowns began, we started setting up calls with lenders in the Western region and really getting to see where their thought process was. Maintaining that dialogue during the rest of the year helped us a lot, because we were able to turn that dialogue into completing deals and having a lot more success with them. The same thing is true of borrowers. We would maintain weekly dialogues with all our borrowers to hear what they were seeing, where we could help, what advice we could offer. This eventually led to some transactions that we were able to help complete last year. Our numbers were only slightly down, but in general we’re still very active and closed a ton of transactions, despite everything going on in the market.
Connect Media: In what regions did you see a concentration of deals? What property types?
Lee: Los Angles fared pretty well. I think a lot of our team’s growth has been in the Mountain states like Idaho and Montana, given migration out of California into cities that are secondary and tertiary as compared to Los Angeles. I think it was really dependent on the asset class. Hotel borrowers really got hammered pretty hard, but multifamily did really well despite some vacancies in the early part of COVID and not knowing if people would be able to pay. Workforce housing dropped 50 and 75 basis points. I think you’re going to see some headwinds going forward with hotel, retail and office.
Yazdi: In the last few months, it’s been interesting to see lenders dipping their toes back in markets like Nevada, for instance. We have a construction loan there, and we’re seeing a lot of activity for that state. With the vaccine rollout getting broader, we are definitely seeing lenders open up. I even think some are worried they’re not going to hit their allocations. They simply have too much capital to deploy.
Connect Media: How are you helping your clients creatively structure financing, given these market conditions?
Lee: On the construction front, I think we’ve seen a little bit of a pullback on JV equity with regard to multifamily so we’ve pivoted our borrowers to high leverage, into what we’re calling “dec-quity” or higher than what a bank would price. For apartments, we’re doing an 85% loan to cost.
Yazdi: To get them more leverage, we’re certainly layering in a debt equity and mezzanine with traditional bank quotes. We’re also working on our equity relationships or helping a lot of our clients raise equity for their projects. And Jonathan’s right and it is certainly tougher, but we’re finding for the right sponsors, the really good capital partners out there, to help them on the GP and LP side, especially again in the Mountain states and workforce housing throughout the country, I’m seeing a lot of activity there.
Connect Media: What do you see ahead for 2021?
Yazdi: I think it will be much better than 2020 with the vaccine rollout. My bold prediction would be by the end of 2021, you’re going to start seeing lenders get active again in the hospitality space as the market opens up and as the world opens up and people start traveling again. I think performance of hospitality will be a lot better than what people are expecting, I think throughout the year we’re just going to see the market pick up steam and hopefully by the end of the year, we’ll start seeing some normalcy going into 2022.
Lee: I think the market is definitely going to be hitting full stride towards the end of Q3 and Q4, but I think some of the problems we saw last year haven’t fully manifested yet. I think we’re going to see some opportunities pop up in extended stay hotels. I think you’ll see conversion of workforce housing depending on the contract with management onsite. There might be pain in pockets but the market is going to come out of this pretty fast.
For comments, questions or concerns, please contact Lisa Brown
Lisa Brown has decades of experience in corporate communications and marketing management with organizations including Coldwell Banker Residential, Grubb & Ellis, Marcus & Millichap, NAIOP, SIOR and ALM.
In those positions, she worked in conjunction with chief executive officers and chief marketing officers to create corporate messaging, cohesive branding standards, strategic marketing plans and thought pieces. Brown is a frequent speaker at industry events and an editing adjunct professor for an online course. She has a master’s degree in mass communications from San Jose State University.