The Market Shows Small Signs of Thawing

When most of the country went into lockdown, investment into commercial real estate mostly dried up.

“Leading up to mid-March 15, when stuff shut down, people were still closing loans with the belief that this [COVID-19] may pass or that they like their basis and they can maybe get a bit more spread,” Yieldstreet’s Senior Director of Real Estate, Mitch Rosen. “Up until March 12, people were still closing loans that had been signed up six weeks prior.”

But after that, the world took a pause.

“I think post-March 15, people really got scared and rightfully so,” Rosen says. “You saw a lot of lenders pull back and retrench starting the week of March 23. All of the mortgage REITs were getting hammered on margin calls, and they leveraged their assets and valuations were getting smoked.” As everyone pulled back, a lot of lenders walked away from signed term sheets and closings and left some borrowers in the lurch. “You saw some high-profile names where that happened,” Rosen says. “I think from that point to the end of April, people really had more of a focus on their existing portfolio and triaging the problems that they had.”

But over the past few weeks, things have changed. Investors have passed the initial shock phase and are looking for opportunities.

“Three or so weeks ago, I think you saw that we are seeing the stabilization of the capital markets,” Rosen says. “We’re not going into a depression, at least not right now. Investors see there are opportunities for them to put some money out and take advantage of others’ lack of activity.”

As an example, Rosen says his firm, which is an online investment platform, recently closed a small $3 million deal on a multifamily property in West Hollywood. But that’s not all. “We’re looking to close another loan in a couple of weeks on a property portfolio of four Brooklyn properties,” Rosen says.

It takes more than Yieldstreet buying some apartment communities, to signal the start of something larger. Other groups are also starting to become active. “You’re seeing signed term sheets and signed purchase and sale agreements where people are looking to put money to work on well-located assets,” Rosen says. “It’s certainly a lot better than the lows of mid to late April.”

While Yieldstreet has not had many launches since March 12, it did have a small diversified art portfolio that sold out in less than 12 minutes. Yieldstreet has also surveyed its investors to understand what they were thinking. With interest rates so low across the globe, it discovered that there really is a search for yield.

“With the 10-year Treasury at 65 basis points, the German and French rates negative and the United Kingdom under 25 basis points, there is a search for yield,” Rosen says.

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