The CRE Finance Council (CREFC), the industry association that exclusively represents the $4.8 trillion commercial and multifamily real estate finance industry, held its annual January conference virtually this year with record attendance of more than 4,200 industry professionals. The three-day conference covered a variety of topics including market fundamentals, distressed commercial mortgage debt and diversity and inclusion in the industry. Author Michael Lewis as the keynote speaker and a fireside chat with FHFA Director Dr. Mark Calabria were also highlights of the online event.
 
“After an unprecedented year addressing the impacts of COVID on the industry, a contentious election, as well as enormous societal unrest, we are all focused on what the future holds,” stated Lisa Pendergast, CREFC executive director. “As an organization dedicated to maintaining liquidity in the commercial real estate space, a vital component of the U.S. economy, CREFC is proud to offer our conference attendees thought-provoking, valuable content that shines a light on how all of these factors impact commercial real estate and the economy writ large. To the good, we are entering a new year in which science prevails and vaccines are available — hopefully in plentiful quantities as we progress through 2021.”


“Notwithstanding a great sense of hopefulness,” continued  Pendergast, “2020 was incredibly difficult for a number of commercial and multifamily property owners, our borrowers, particularly in the hotel and retail sectors. With them in mind, we will continue to advocate for appropriate borrower relief, as well as tenant rental assistance via direct government support that goes beyond the limited scope provided by the Paycheck Protection Program. Direct relief to tenants not only provides them with the ability to continue to operate their businesses, but also alleviates the challenges eviction moratoriums impose on property owners and their ability to hold on to their properties.” 


Industry Sentiment: What’s to Come...

Overall, panelists conveyed a positive sentiment for the future of commercial real estate in 2021.
 
The introduction of a COVID vaccine has bolstered this view. Panelists often cited the healthy state of the commercial real estate industry, banks and our financial markets when the pandemic struck.

 
The property sectors that suffered the most are retail and hospitality, yet loan servicers acted judiciously with property owners to provide relief to avoid foreclosures with far less of this activity than many expected given the dire circumstances that COVID presented. Indeed, in-foreclosure and REO assets remained low at 1.2% and 1.0%, respectively, across conduit and SASB markets as of December 2020. In the office sector, many anticipate a return to the office in some form beginning later this year, and cited factors such as the critical importance of ‘getting back in person’ for the sake of younger team members, as mentorship and fostering a healthy and collaborative corporate culture are foundational for advancing one’s career path. Some panelists noted they are safely back in the office already while others are looking for assurances of widespread vaccination to begin reentry. 


Property Fundamentals

It is no secret that some property types have fared better than others throughout the pandemic.
 
The retail sector was in distress prior to COVID and continued to suffer as brick and mortar retail has been all but made obsolete due to the increase in e-commerce. The rise of e-commerce has created an incomparable demand in industrial space, now the darling of commercial real estate investment.


Hospitality has also suffered greatly, but the leisure sector has started to regain its strength though the groups, conferences and meetings sector still lagging behind as business travel continues to be on hold.

 
The office market remains strong for now as long-term leases in place have steadied that sector. However, it is expected that many companies will go through a ‘right-sizing’ exercise ensuring their space holistically meets the needs of a post-pandemic workforce, many of which may now choose to work from home. There is a sense that considerable stress may be looming in the office sector, but time will tell.
 

What’s in Store for Biden’s Administration?

In his first few days in office, the 46th U.S. President Joe Biden issued more executive orders than any of his recent predecessors. With a clear strategy in place, his first 100 days is focusing on getting the pandemic under control, distributing vaccinations and putting the right personnel in place. President Biden’s Build Back Better plan will tackle the economy, jobs and enact the long delayed focus on infrastructure while retooling the economy for an environmentally sustainable future. The Build Back Better recovery plan will be fully unveiled in February, but those on the CREFC panel agreed we will likely not see legislation from this initiative being signed into law until possibly the fourth quarter. The panel was in agreement that Biden’s COVID package would likely be signed into law in March and be smaller than the proposed $1.9 trillion. As for the House Financial Services Committee, chaired by Congresswoman Maxine Waters, the CREFC panelists noted her focus on COVID response would be related to housing, rental assistance and a continuation of eviction moratoriums, closing the racial wealth gap with diversity and inclusion initiatives and overturning Trump-era regulations that impacted the financial services sector.

The CRE Finance Council (CREFC) is the collective voice of the $4.8 trillion commercial and multifamily real estate finance markets. For more information visit crefc.org.


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