April 3, 2020
Anticipating a slowdown in commercial property transactions due to COVID-19, some industry members have looked to the recent past—namely, the 2008 Global Financial Crisis—for parallels. However, says Real Capital Analytics, it may be an apples-and-orange comparison.
In a webinar earlier this week on investment trends heading into the COVID-19 crisis, RCA’s Jim Costello highlighted some of the ways in which 2008 and 2020 aren’t the same. For one thing, the price drops seen in 2008 were abnormally large by comparison to any other downturns over the past 60 years.
That price decline fed into a spiral during the GFC. As property prices began declining, lenders were hesitant to lend against these declining values. That absence left of debt capital left buyers on the sidelines, and a lack of transactions led to declining prices.
Compared with the run-up to the GFC, we’re in a different lending environment now. CMBS originators commanded more than 50% of market share in 2008, so when the bottom fell out of CMBS, there went the main source of debt capital.
Today, CMBS holds just a 15% market share overall, and in 2019 no class of lenders represented more than a 22% share of CRE lending. And although LTVs have crept upward in recent months, they’re still well below the levels seen just before the onset of the GFC.
Costello said a clue to which property sectors will fare best in the COVID-19-induced downturn—however long and deep it proves to be—might be found in looking at which sectors were healthy and which were less robust as of February. Office sales volume was up 9% year-over-year and up 7% over the trailing 12 months, while industrial’s gains were even stronger at 132% and 33%, respectively. Conversely, retail and hotel both posted double-digit declines on both a Y-O-Y and 12-month basis.
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