Joe Friedman, Partner, Capital Markets, Edge
With a consensus that capital markets activity has shifted in the post-shutdown economy “from a 1 to a 6 out of 10,” several local real estate experts have reason to be cautiously optimistic about the state of the capital markets since the dramatic freeze during the shutdown in the spring months in the greater DC region. With the relative strength of the regional economy, hopes of a virus vaccine on the horizon, and prospects for increased federal government spending under a new administration, capital markets activity will continue at a steady but tempered pace. The coming months will encounter several bumps in the road that could detour the recovery, including the lasting effects of a dramatic downturn in urban markets and an increase of distressed properties, particularly within the commercial office and retail classes in urban areas.
These sentiments were presented in a webinar sponsored by the NAIOP DC|MD Chapter and moderated by Joe Friedman, Partner, Capital Markets, Edge. Panelists included Alex Basile, Director, Debt and Structured Finance – Multifamily, Newmark Knight Frank; Martin McCarthy, President and CEO, Founders Bank; and Jared Okun, Managing Partner, Fortified Property Group.
Alex Basile, Director, Debt and Structured Finance – Multifamily, Newmark Knight Frank
“We are committed to building our loan portfolio and we’ve seen many good opportunities recently,” McCarthy of Founders Bank explained. The financial institution opened at the start of the pandemic this April. “However, we are being very careful and moving cautiously with COVID remaining the big elephant in the room for every credit discussion. Evaluating and mitigating risk is paramount.”
Okun of Fortified Property Group remains “cautiously optimistic about the future after things came to a screeching halt in March and April.” He explains that there is tremendous stability in the DC market and that, “given the presence of government contractors and the federal government in general, the market historically does not exhibit major highs or lows. This region is not filled with mega-industrial properties but, rather, in-fill properties that families or users have owned for forever. And there is not enough space for logistics and last mile providers that need it,”
Martin McCarthy, President and CEO, Founders Bank
“Fannie Mae and Freddie Mac has dominated the residential space and, nationally, the issue of collections remains our focus,” stated Basile of Newmark Knight Frank. “We track trends nationally and, across the board, have seen big upticks in vacancy in the downtown, combined with falling rents. Generally, fundamentals have held up well in the suburbs.”
“We remain cautious with our office lending and retail lending, with a focus on strong tenants and sponsors,” McCarthy added. “Multifamily could be further impacted as stimulus and local measures wane.”
Jared Okun, Managing Partner, Fortified Property Group
Okun understands the shift away from living downtown because “people are paying for convenience and amenities, but most everything remains closed, while adding that “retail is always a needed asset class and people inherently want to get out and see each other. We have not seen many distressed properties because banks are cooperating with borrowers for the most part.”
Interest in student housing will return, according to Basile, if the project is “in a Power 5 conference and students are living on campus.” He says better times lie ahead in the senior housing with pricing maxing out at a 65% leverage.
Asked what he is most optimistic about and Basile responded that, “2020 cannot continue forever.”
