Market activity has exceeded expectations despite early concerns, according to Berkadia’s 2020 Mid-Year Powerhouse Poll
NEW YORK – August 6, 2020 – Berkadia’s 2020 Mid-Year Powerhouse Poll finds that the initial concerns about the COVID-19 pandemic’s impact on multifamily real estate have not been realized, and Berkadia mortgage bankers and investment sales experts agree that while activity may not return to “normal” until 2021, opportunities still exist in the current climate. The proprietary poll, conducted in early July, collected insights from nearly 150 Berkadia investment sales brokers and mortgage bankers across 60 offices to assess the impact COVID-19 has had and will continue to have.
Despite early concerns, 55 percent of Berkadia professionals agree that current market activity is better than expected compared to how they initially thought COVID-19 would impact the industry overall. Thirty-four percent say the current market is in line with their expectations.
“COVID-19 continues to have a profound impact on our economy, and while no industry is immune, we have been buoyed by the resiliency of commercial real estate, including steady rent collections and continued deal activity,” said Ernie Katai, executive vice president and head of production at Berkadia.
While transaction volume is understandably lower than initial projections for the year, 69 percent of Powerhouse Poll respondents feel confident that capital conditions will return to normal in 2021. Berkadia professionals’ sense of the timeline of recovery aligns with that of investors, as well. The firm’s Apartment Investor Sentiment Survey shows increased confidence in the multifamily market over time. When initially surveyed in April, 47 percent of investors agreed that recovery from current capital conditions by 2021 was likely—the same survey conducted in June saw that number rise to 55 percent.
Increased Focus on Affordable Housing
The economic impacts of the pandemic have caused investors to give greater consideration to property types that are expected to weather the storm better than others. When asked to rank housing types based on their ability to maintain success through a prolonged economic slowdown, Berkadia experts noted Class B (85 percent), true affordable (81 percent) and Class A (69 percent) housing as most likely to sustain.
Current economic conditions shed more light on the ongoing need for affordable housing throughout the country, and as a result, investor interest in multifamily properties specifically targeting low-income residents continues to rise. Eighty-one percent of Berkadia professionals agree that investors will be more interested in affordable housing properties than before, as a result of COVID-19’s economic impact.
“Housing instability has been exacerbated by the economic downturn and increased unemployment, but a renewed focus on affordable housing could be a silver lining of this challenging time. This pandemic has demonstrated how vital safe, reliable housing is for the stability and well-being of our communities,” added Katai. “While the affordable housing market has been impacted by COVID-19, it has performed better than other asset classes and is comparatively well positioned for recovery.”
The industry continues to find the right way to help underserved communities across the country as conversations around affordable housing tax benefit programs continue. When asked to identify three potential solutions for improving the affordable housing crisis, modifying tax credit policy (76 percent), local and state government intervention (61 percent) and regulatory changes for GSEs (43 percent) were cited most frequently by Berkadia respondents.
CRE Adapts to the Current Market
The industry acted quickly to keep properties safely managed, business running and deals closing when COVID-19 started to take hold in the U.S. In some cases, investors reassessed their business strategies to meet the economic changes. When asked how investors’ actions changed since the onset of COVID-19, respondents cited seeking immediate financing on currently owned properties (64 percent); focusing on business operations rather than deals (55 percent); pausing all activity in their portfolio (46 percent); and seeking advice and recommendations on how to react to the market (45 percent) as the most common trends.
Despite commercial real estate being a predominantly in-person business, quick adaptation of technologies and remote working practices have kept operations and communication in motion. Ninety-two percent of respondents agree that the adaptations and improvements made a result of COVID-19 and social distancing requirements will persist and the commercial real estate industry will continue to advise clients remotely in certain situations in the future.
“The industry’s investment in technology over the past decade was truly put to the test when we were no longer able visit properties on-site, meet with investors in-person or work together in our local offices,” said Katai. “While we’re eager to get back on the road and see clients face-to-face, we expect some practices adopted during this time—such as virtual tours and inspections, and remote or electronic closings—could stick around for the long-term.”
As we continue to see technology transform all aspects of commercial real estate—during this time and beyond—respondents cited streamlining and enhancing deal processes (60 percent), enhancing investment decisions (56 percent) and increased flexibility around deal closings through innovations like virtual property tours (52 percent) as ways technology will have the greatest impact on the industry over the next five years.
Like all businesses and industries across the country, commercial real estate continues to adapt and work towards recovery from the pandemic. However, COVID-19 is not the only thing on the industry’s mind.
“While it’s easy to get caught up in the near-term impacts of the pandemic, we cannot lose sight of the significant events on the horizon—the election, the LIBOR to SOFR transition, potential GSE reform—that will inform the direction of our industry in the coming months and years,” said Katai. “It is incredibly important to take the long-view when it comes to the commercial real estate industry. The industry has weathered periods of significant transition before, and we are confident in our ability to work through this one just as we have done in the past and will face again in the future.”
Mortgage bankers and investments sales advisors alike are eager to see how some other major trends play out that could have serious impacts on the market, most noteworthy of which being the upcoming presidential election. From mortgage banker respondents, interest rates (86 percent), the 2020 election (49%) and debt underwriting and willingness to underwrite new income (25 percent) were cited as some of the top trends on their radar looking ahead. The election (59 percent), debt underwriting and willingness to underwrite new income (50 percent) and institutional investors (30 percent) similarly ranked at the top for investment sales advisor respondents.
About the Powerhouse Poll:
The 2020 Mid-Year Powerhouse Poll data was collected in an online survey conducted internally by Berkadia through SurveyMonkey in July 2020. The sample was based among Berkadia’s 60 offices throughout the U.S., consisting of 46 investment sales brokers and 97 mortgage bankers, totaling 143 overall respondents.