LENDING: CAPITAL MARKETS: GOODBYE 2020, HELLO 2021.

• Author: Barnson, Nate

IN FEBRUARY 2020, I attended the annual MBA Commercial Real Estate Finance conference in San Diego where the capital market lenders and mortgage bankers converge for three days of meetings, reporting on the previous year, and discussing lending programs and plans for the upcoming year. Almost without exception, life companies, banks, Fannie, Freddie, HUD, and other debt funds expected more of the same over the next 12 months. You know what happened next.

Although life has changed dramatically for all of us, the low interest rate environment and substantial availability of capital (along with ample equity chasing deals) has continued to fuel the commercial real estate markets, particularly in the second half of 2020, and is likely to continue to do so through 2021 for the right markets.

Fortunately for us, Utah seems to benefit when other markets, like California, continue to have challenges. Lenders still buy-in to the underlying fundamentals of our market and have an appetite to put out more debt here in 2021. This assumes the economy can continue forward with the help of vaccines, stimulus packages, and government influence.

Here's a look at what some of the specific buckets of money have to offer:

LIFE COMPANIES

Life Companies biggest challenge will be the search for yield. With ample money to invest, finding the right risk/return balance may force lifeco's to expand their programs from the traditional long-term fixed-rate deals at the lowest rates, to opening up more bridge, construction-perm, and higher rate loans at higher loan to values than before. Current rates in the 2 and 3 percent range present other long-term challenges in balancing the asset/liability matching of the insurance products they sell. Regardless, we expect to see plenty of lifeco deals getting done in 2021, with the favorite products being industrial, multifamily, investment grade tenant, and select grocery-anchored retail deals.

FANNIE AND FREDDIE

Fannie and Freddie have seen adjustments to their lending caps, reducing the 12-month cap on each from $80 billion to $70 billion, which falls in line with current production numbers. Additionally, there is more emphasis on affordable "Mission" deals. Neither change is anticipated to slow the deal flow for Fannie or Freddie on stabilized properties. They will continue to be more selective on student housing, lease-up, and value-add deals. For higher leverage deals, we anticipate seeing operating reserves continue for the...