MetroGroup Predicts a U-Shaped Recovery

MetroGroup Realty Finance is predicting a U-shaped recovery. While better than some estimates, a U-shaped recovery will mean that the impact of the pandemic will linger for many years. In addition businesses will have to adapt new business models and address shifting fundamentals across sectors. In many ways, the true impact of this economic event have not yet been realized.

“We anticipate a U-shaped recovery in that the effects of the pandemic will linger for several years,” J.D. Blashaw, VP of MetroGroup Realty Finance, tells GlobeSt.com. “Some industries are having to fundamentally change their business models to adjust to changing consumer behaviors, which may require longer-term strategies and capital investment. We are already seeing several hotels being converted to multifamily apartments in major metropolitan areas. We will continue to see retail reinvent itself and adjust to changing demographics, lifestyle changes and consumer behaviors.”

While the recovery could be longer than anticipated, there will continue to be investment and capital opportunities in the market. “We anticipate there will be sufficient capital options available for owners of income properties in the coming years,” says Blashaw. “There continues to be plenty of capital and historically low rates with a continued commitment from the Fed to keep rates low during the recovery. We expect rates to stay in the high 3% to low 4% range for most asset classes with reasonable leverage for at least the next 18 to 24 months.”

However, originations will continue to trail behind 2019 and early 2020 activity. The CMBS market in particular will be rocked by the pandemic. “After a 20% increase in originations in 2019 and a positive outlook in the beginning of 2020, we anticipate a dramatic reduction in CMBS originations for the rest of 2020, though it will be partially buoyed by banks, thrifts and life insurance companies,” says Blashaw. “We continue to see debt funds and private money lenders increase their percentage of originations providing a reliable source of capital for higher leverage requests and transitional assets.”

Despite challenges, MetroGroup has continued to fund loans through debt funds and private moneylenders. One recent loan is an example of the activity. “MetroGroup recently provided a $12.5 million bridge loan on a 270,000 square-foot industrial building in the City of Vernon, CA, from a private moneylender,” says Blashaw. “The tenant was a new start up that had no operating history in a unique industry that had been adversely affected by the pandemic. The bridge loan allowed the property owner to retire a maturing, higher-rate loan while giving them time to either season the tenant to pursue more traditional permanent financing or potentially market the property for sale to maximize value.”