What is happening with lending during these times? We are having a timely conversation with John Pascal, Managing Director of Paramount Capital Advisors a highly experienced professional that has been through a few downturns and has some timely advice.
You can read the entire interview here: https://montecarlorei.com/state-of-commercial-loans-during-the-coronavirus-what-are-the-available-options/
As of today, and we know that things can change tomorrow for the better or worse, what is happening in the lending world?
In a nutshell, it’s ugly. In general, from the bank’s perspective as it relates to some of the real estate types that are more sensitive to economic issues such as hotels, and retail to a lesser extent, they’re basically pressing the pause button. With respect to hotels, what you’re seeing is a lot of hotels are closing. Last week, hotels were maybe doing a little bit of revenue, and now they’ve basically closed. So you have a really unique situation where lenders really just don’t know how to evaluate new opportunities. Because the big question is, how quickly will come out of this, and what the environment will look like, over the next 3 to 12 months, as it relates to the hospitality. As it relates to retail, you have a situation where restaurants and larger retailers, who had issues, or some credit issues before, what are they going to look like over the next year? If you’re a grocery retail center, you certainly have a higher likelihood of getting financing because obviously grocers are one of the businesses that are really flourishing in this environment.
In terms of creative solutions, if people find deals at this point in time, what are some creative lending solutions that you might recommend people looking for, or negotiating?
Depending on the product type, I’d say, hotel is very difficult. If you’re buying a hotel or refinancing a hotel, I think the best option is through an SBA program, probably 7(a) because banks can securitize a good portion of the loan and get it off their balance sheet. As it relates to other product types, there are dead funds out there that are lending today. They’re being obviously more thoughtful about what they’ll lend on and looking for existing cash flow a good sponsorship, etc. But those debt funds will tend to be a little bit more expensive, maybe in the 7-10% range, non recourse. So those options are still available, those are typically floating rate. So there are lenders out there that are still lending, looking to take advantage of the lack of conventional capital market today.
What are your thoughts on what you think will happen in the next six months to a year?
I think that the economy will bounce back. It's just a question of time, for how long it takes to get back there. I think you're going to see V shaped recovery and I think it may take three to six months to get there. And I'm not suggesting it's going to be a full recovery. But I think you're going to see businesses ramp back up fairly quickly. I think there certainly is going to be casualties. And I think there's certainly going to be caution on the part of businesses, small businesses, etc, to ramp back up. But I do think you'll see a pretty significant recovery. The government is going to keep rates low for a while.
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