How Staying Nimble in Commercial Real Estate Has Led to New Opportunities

September 8, 2020

How Staying Nimble in Commercial Real Estate Has Led to New Opportunities

September 8, 2020

Vince Punzi and Chuck Christensen Speak to How Staying Nimble in the Commercial Real Estate Industry Has Led Their Clients to New Opportunities

Now more than ever, we need to stay ready. Over the past few months, we all have become accustomed to working and living amidst uncertainty. And during this time, we have learned how important it is to stay nimble in commercial real estate and pivot quickly for the twists and turns that may lie ahead.

Though the past few months have brought its challenges—and we in California continue to face health and safety concerns like much of the rest of the country—there have still been opportunities for our clients. As we look towards the future, it is important to reflect on our progress in order to best understand how to continue moving forward.

Opportunities Around Every Corner

Though business was down for the first few months of the COVID-19 pandemic, activity has picked up recently. In fact, more than half of our team’s current pipeline is acquisition activity, and we are seeing significant multifamily demand as the debt markets continue to be active.

In terms of sales specifically, strong bidding remains active across all markets as long as the assets are properly priced. We are seeing buyers accept a lower potential return to purchase assets in West Coast markets. Salt Lake City, Phoenix and other West Coast markets are seeing strong bidding activity and prices nearing pre-COVID levels. It is important to note, however, that due to legislation and job losses, some markets, like Los Angeles, have less buying opportunities. In these markets, collections have been impacted, and sellers are waiting for net operating income to recover to achieve a maximum price.

On the financing side, bank lending competition has historically been more competitive in the West Coast region than anywhere else in the country. At the moment, we are at a unique time in the market where we foresee the agencies picking up significant market share with their superior loan terms. The cost of capital for banks cannot get much lower, and the recent interest rate changes have put downward pressure on the interest income of most banks. Banks will continue to be competitive on loans with terms of three years or less, but beyond three years the agencies currently offer more attractive options for borrowers.

With the current market movement, we are hopeful for a promising future, and so are our clients. Over the past few months, we have seen clients capture great opportunities simply because they were able to act quickly to close the right deal. Market volatility has resulted in evolving motivations, and proactivity is being rewarded.

Pivoting with Technology

Travel is a staple of the commercial real estate industry. Prior to the pandemic, one or more of our team members would constantly be on the road meeting with clients across our national client base. However, when COVID-19 made traveling unsafe, technology stepped in and allowed us to maintain client relationships and continue getting deals done.

Though we’ll always prefer in-person meetings—especially when building new relationships—takeaways from this remote working experience will surely stick with us all for years to come. As Berkadia’s 2020 Mid-Year Powerhouse Poll shows, we can expect that even after the pandemic, efficiencies such as virtual inspections and tours, along with remote working practices, will become more commonplace.

More Changes Ahead

As we continue forward, our team advises clients to stay ready, as opportunities can come from just about anywhere. In fact, on a recently closed loan, the borrower had term left on its current financing and a refinance required a prepayment penalty. Ultimately, the sponsor sent over financials and the mortgage credit details in advance, and within weeks of preparing the memo, we decided to move quickly in light of the low interest rates. We executed two loans with a blended rate, cash out and a reduction in debt service payments.

As mortgage bankers, we do our best to serve clients no matter the circumstances. While we miss being able to meet with clients, we are grateful for our ability to continue to service them. Though uncertainty lies ahead, we are optimistic for the future and encourage everyone to stay ready and remain nimble in the commercial real estate industry, specifically.

Senior Director Vince Punzi and Managing Director Chuck Christensen