Refinancing activity accounted for just over half of all commercial property lending in the first nine months of 2020, according to the November 2020 U.S. Big Picture report recently released by Real Capital Analytics (RCA).
Refinancing made up 51% of capital flows from the first quarter to the third, the highest refi share in the commercial market since at least 2015. In some ways, it’s the continuation of a larger long-term trend, with the refi share of the market increasing every year during that same timeframe.
Clearly, however, it’s also very much indicative of the new normal that both lenders and borrowers have had to endure during a difficult 2020 for commercial lending. With buyers and sellers at a stalemate as to how to price assets during the COVID-19 pandemic, sales have dwindled in 2020’s first three months, and the pullback has been reflected in the purchase share of total activity. Property acquisitions accounted for just 28% of all capital flows from Q1 to Q3 in 2020 after hitting no lower than 36% over the previous five years.
Want more news, topics and trends?
Get perspectives on the mortgage industry from thought leaders by subscribing to Scotsman Guide’s free digital editions.
The active refi market has been one of the factors that has distinguished this current crisis from the Great Recession, RCA noted. The inability to refinance cash-flowing properties surfaced as a big issue during the doldrums of 2008 to 2009. But lenders, at least thus far, have been willing to work with property owners on refinancing their properties in a pandemic-addled America, leaving any remaining buyers competing for a smaller pool of assets. Consequently, the ability to refinance and not sell has led to “sticky” prices during the current recession, with RCA’s Commercial Property Price Index up 5.7% at the end of November.
The third part of the market — construction activity, both in equity and debt — has hovered at a constant 19% to 22% of all capital movement over the last six years, and remains so in 2020. Construction accounted for 21% of all activity over the year’s first three quarters, with multifamily construction so far leading the way during the business cycle. Apartment developers have led development site purchasing for two years prior to 2020, making up almost one-third of all such acquisitions. RCA, however, noted that even apartment developers have begun to ease off on dev-site buying, accounting for just 22% of all such purchases in the 12 months ending with Sept. 30.
