One of the most impactful elements of the COVID-19 pandemic was its ability to cause massive changes in nearly every industry. The pandemic led to many changes and shifts in how investors and financial institutions see commercial real estate in the real estate business.
Knowing how the COVID-19 pandemic impacted CRE lending can help you better understand how to move forward.
Record Low Interest Rates
The single largest impact on CRE lending was the resulting change in interest rates. Though recent years have seen a steady decline in interest rates, the recession-like conditions of the COVID-19 pandemic hit at just the right time to cause borrowing costs to reach record lows.
While many analysts expected rising interest levels on loans and mortgages, the acute pandemic-related economic crisis forced financial institutions to take extra market risks and begin lending money for next to nothing.
Larger Down Payments Needed
Though interest rates were low, many banks still required larger down payments on loans. The COVID-19 pandemic was so damaging that lenders wanted a larger stake, and they increased their down payment requirements.
Rescue Funds Impacting Owners and Investors
The pandemic caused many to lose their jobs. Even if the loss was temporary, the lack of income rose to the top, with many tenants unable to pay. It was not uncommon for owners of commercial buildings to have their rents go unpaid for several months as the crisis unfolded, and some properties had significant portions of their rent rolls going unpaid.
As a result, investors and lenders are forced to become more stringent in their credit standards to help protect themselves from future losses.
Lenders Have a Stricter Underwriting Environment
Given the lingering effects of COVID-19 and the economy’s recovery from that pandemic, lenders have stricter underwriting environments than in previous years. The investment sector has less to lend and they are more cautious about whom they lend to. This may actually make it easier for some potential investors to onboard into their new investment experience.
The pandemic has certainly changed the market, and there are many new opportunities for those looking to build their portfolio if they are ready to take advantage of the changes.