Writer: Max Crampton-Thomas
2 min read March 2021 — Berkadia is a leader in the commercial real estate industry, offering a robust suite of services to their multifamily and commercial property clients. Powered by deep relationships and industry-changing technology, their people sell, finance, and service commercial real estate, providing support for the entire life cycle of their clients’ assets. Senior Managing Director and Co-Head of Florida Originations Charles Foschini spoke with Invest: about the company’s strategy, the impact of the pandemic on how clients are evaluating transactions and the outlook for commercial and retail real estate.
How has Berkadia’s strategy shifted a year into the pandemic?
Our strategy is always to meet our clients’ needs. From a capital markets perspective, a lot of money left the system except for multifamily last year. Some of our clients found some of the best deals in terms of leverage and cost of capital money that they had ever seen. This year, there seems to be an enormous amount of capital coming back into the market. People are comfortable with the idea that the pandemic will end, and that the economy is quickly returning to a strong position of health. Specific to South Florida, we have been a primary beneficiary of that. There has been a lot of wealth movement to Florida and this seems to be the start of a lot of corporate movement to the state as well.
How did the health crisis shift the way your clients evaluate potential transactions?
It was critically important for us to close assets and to get loans funded for clients who had transactions under application or under purchase and sale at the start of the pandemic. As we worked through the pandemic and clients continued to purchase, sell, finance or refinance properties, we had to ensure that our capital understood the situation at hand and was committed to providing a loan. It seemed that the marketplace adapted quickly. The federal government and state and local governments put eviction moratoriums in place, which we had never seen before. Everyone was learning in real time how to handle the crisis and most people navigated it extremely well.
How did the underwriting process change during this time?
With commercial properties, most tenants had long-term commitments. Depending on the asset, you could have tenant credits but as long as the tenants retained their moral compass, those rent payments continued. In the multifamily arena, the agencies responded quickly by creating a COVID reserve. They would hold back some mortgage payments to make them more comfortable in making a loan because of the forbearances that were in place in many parts of the United States. One asset that experienced a downturn was hotels because there are no long-term commitments and there are no credit leases with the government-mandated shutdowns. It’s difficult to hold corporate conferences and things of that nature at the bigger convention hotels, even if your customer wants to come. That has been the biggest challenge in the pandemic and emerging from it.
Do you see the suburban markets holding ground for the long term?
I believe in the immediate to midterm, the suburbs will be a great beneficiary. There are many areas in Florida where you can drive up to your office, walk up a flight of stairs and walk into your office space. Meanwhile, in urban areas there are a lot of buttons to push, and public transportation among other things. It will take some time post-pandemic and post-vaccine as the public gets reassociated to those things and the buildings adapt in terms of extra hygiene procedures, lighting that kills virus, social distancing and things of that nature that are hard to do if you are on a bus or in metro station. In general, both people and our markets are resilient, and as the world gets back to a new version of normal, they will adapt. In the midterm, the urban environments will not benefit as much as suburban.
Did speculation around distressed properties materialize?
The distress that everyone expected did not show up and the anticipation is that for most owners in real estate, there will not be an extended level of distress. In fact, there has been a flight to real estate. Inflation may come back into the market as a result of all the capital spending and government printing of money. A great hedge for inflation is real estate. Anybody who refinanced in the last five years, especially last year, got interest rates that are now locked in and low in comparison to historic levels. That provides great insulation and enhances the value of real estate.
What is in store for the retail sector emerging from the pandemic?
There has been a lot of stimulus injected into our system. Some people have been paid for the last year but did not really do anything because they were sheltering in place or their favorite stores and places were closed. There is going to be a lag between people getting the vaccines and the reopening of our worldwide economies. I would expect that well-conceived retail could be a big beneficiary of that. Many of the concepts that were not doing well before the pandemic are either gone or will be gone. That will create opportunities for others. Some of the larger malls that may have vacant spaces may be reimagined as multifamily, schools or spaces that can drive traffic or logistical last-mile sites for e-commerce or other delivery services. In most cases, retail spaces come with a large amount of parking, and that is a highly desirable aspect for any kind of real estate. I expect them to do well in the mid to long term.
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