May 4, 2020
By Dennis Kaiser
Voya Investment Management’s Managing Director and Head of Real Estate Finance, Greg Michaud, discussed the current state of lending with Gantry’s George Mitsanas in a webinar presented on Monday. The conversation dove into the ways institutional lenders are approaching the COVID-19 crisis, and what borrowers need to know about financing their real estate projects in this dynamic environment.
Voya manages a $12 billion commercial mortgage balance sheet and the follow-on company to ING had scheduled a 2020 allocation of $4.5-billion. That pre-Coronavirus investment strategy was split between fixed rate, low leverage, core loans and floating rate, light transitional, core+ loans, notes Michaud. He points out they will adjust their allocation target to account for shifts caused by the current coronavirus market disruption as the year progresses.
He confirmed they are open for new deals, as evidenced by the $30 million in transactions closed in the last two weeks alone. Michaud points out they now put a little more structure into place to mitigate any potential short-term disruptions from the impacts of COVID-19 outbreak. That might include a six-month interest reserve to “gap a property until the market opens up a little bit more,” he said.
Voya is also being a little more particular about the markets in which it invests. Michaud notes they are avoiding some of the harder hit markets. But said Texas – save for Houston – has been on their radar of late because it has performed well, in terms of rent collections. He says they will continue to track the rent collection numbers and focus investment capital on the geographic areas that outperform other markets.
The sectors they are shifting away from are retail, which was struggling prior to the coronavirus pandemic, as well as hotels, which is on a “time out” for the balance of year at least before Michaud says they’d look at doing another deal in that asset class.
Michaud indicated they’ve primarily been doing industrial deals, because that category has largely escaped the impacts of COVID-19, as well as self-storage. He noted they will also selectively look at office deals, though they are closely scrutinizing multifamily investments because many markets have enacted rent moratoriums that must be accounted for. Voya favors the workforce multifamily segment in the right market because those assets tend to deliver on affordability and are able to maintain “decent occupancies,” notes Michaud.
Meanwhile, Mitsanas pointed out that on the servicing side, the forbearance issue arose suddenly. The roughly 2,000 loans Gantry services had no requests 60 days ago and now they are increasing in frequency. He points out roughly half of the requests are exhibiting legitimate issues such as cash flow has disappeared, tenants are not paying rent or in some multifamily properties’ residents are participating in rent strikes.
Mitsanas advises borrowers to avoid asking for or taking forbearance now if they can because he believes when the market emerges from this recessionary period, borrowers will stand a better chance of landing financing in the future. “Lenders could be conservative, and in order for lender to stretch I believe they’re going to stretch for those who carried their properties and stood tall,” he said.
Michaud says they plan to be helpful to borrowers that need relief, but recently they’ve been inundated with requests. He indicated roughly 25% didn’t actually need forbearance, and many simply wanted to get in queue in case they eventually did. That has shifted to a keen focus on borrowers that did need help. They are closely working with their mortgage banking network to triage requests.
Though the market changed from the first part of Q1 to early Q1, Michaud points out Voya “stayed in the commitments” and “honored the spreads” with borrowers who still wanted to close. He did note they looked at rent payments to get a better indication of where a property stood, and depending on that situation they may request some hold backs to make sure there’s no problems down the road.
Mitsanas underscored Voya’s steady course despite the turmoil by pointing out a $35 million deal recently completed in the Bay Area. Voya funded the deal even though it was initiated prior to the uncertainties COVID-19 outbreak.
For comments, questions or concerns, please contact Dennis Kaiser