Coronavirus & Capital Markets: Opportunity in the Midst of Caution
Lenders and investors may be a little wary when approaching deals under the shadow of COVID-19, but opportunities to employ capital strategically when market prices are low can make for long-term opportunities. Many in commercial real estate hope to lay significant groundwork, strengthening their economic trajectories whenever the market recovery begins.
Keith Kurland, senior managing director at Walker & Dunlop, serves as co-head of the company’s New York Capital Markets practice and spoke to REBusinessOnline about the business of sourcing and structuring debt and equity financing in the midst of coronavirus. Kurland joined Walker & Dunlop in January of this year, after the company acquired AKS Capital Partners, which was co-founded by Kurland in 2019.
Coronavirus Conditions & the Impact on Lender and Investor Interest
“Given our diverse and multi-sector client base, we are still actively financing almost every product type,” Kurland says. “While some sectors and deal types may be more challenging than others due to the impact of COVID-19, we are still tasked with supporting our clients to make sure that they’re either being defensive or offensive, depending upon the lifecycle of the projects that they’re currently invested in. Our team is currently marketing and under application with over $4.5 billion of debt & equity assignments, exclusive of a fairly significant pipeline behind that.”
Of all the asset classes, Kurland sees considerable strength in industrial: there is both liquidity and desire to be part of this space. Already an industry darling for investors and lenders, equities markets further solidified their appetite for industrial real estate in the past four to five months, thanks to the exponential increase in e-commerce.
On the multifamily front, Fannie Mae, Freddie Mac and HUD have continued to lend aggressively, providing a great source of capital to Walker & Dunlop clients. The pandemic and resulting economic impacts have stressed the need to maintain stable funding sources for housing.
In the retail sector, the pain from the coronavirus may last longer than for other property types, but there is capital available for assets with strong national tenants in place, Kurland says.
Are Commercial Real Estate Loans Originating During the Pandemic?
Activity is continuing beyond deals that were in the works before shelter-in-place orders went into effect. “From an acquisition perspective, we have been engaged, marketed and closed deals post-COVID onset,” Kurland says. “That includes multifamily, condo, industrial, office and even retail and hospitality deals. A space where we’ve seen particular growth is on the note sale and note acquisition financing. We have been engaged by a number of our lending partners to sell both performing and non-performing notes.”
In 2019, Walker & Dunlop closed with more than 100 lending institutions. Post-COVID-19, Kurland says that the company’s lender counterparts still run the gamut from commercial banks, life companies, debt funds and everything in between. Lender interest in deals varies depending on the sector. Generally speaking, though, Kurland notes that some tier one commercial banks have been slower to engage on the balance sheet than the rest of the market, while the investment bank side of these companies continues to be very active.
“The CMBS market is back to lending — though more conservatively than before this year’s market shutdown,” he adds.
Walker & Dunlop’s traditional strengths form a through line that the company can rely on: the structured finance world remains an area of interest for Kurland’s team, and historically construction or heavy redevelopment, joint venture equity raises and leverage have made up a large part of their business. Walker & Dunlop has traditionally excelled at complicated transactions, and Kurland doesn’t anticipate that changing, even now. In fact, he notes that even “simple” deals can be complicated given what’s going on in the world today.
Capital Market Realignments — How to Proceed
The capital markets landscape has shifted radically and may continue to shift, Kurland says.
The good news? “There happens to be a lot of liquidity in the market for the right product, and pricing is at historic lows. If you’re able to access the capital markets today, it’s a good time to be a borrower,” he says.
Kurland says he and his team are incredibly busy and he anticipates the pace of activity will continue during the last six months of the year. With three months of downtime and a lot of delayed deals that companies need to work through, Kurland sees a trend of borrowers and investors making up for lost time. With his team averaging close to $14 billion a year in deal volume, Kurland doesn’t expect a drop-off on 2020 year-end totals.
“Over the last eight weeks, the capital markets have continued to open up and strengthen. People are starting to feel better about originating new credit. There’s a tremendous amount of liquidity — on both the credit and equity side. People are looking to deploy capital, but they are doing it in an intelligent and strategic way.”
Kurland isn’t comfortable making predictions. It is 2020 after all. He notes, “There is a great deal of economic and political uncertainty still ahead. We’re headed into hurricane season and a presidential election — on top of continuing COVID-19 fears.”
But Kurland sees reason to be cautiously optimistic.
— By Randy Shearin and Sarah Daniels