Lockdowns v2.0: Implications of State Lockdowns on Commercial Property Markets
August 10, 2020
Article by: Omar Eltorai
- State ordered lockdowns challenge disrupted property cash flows and challenged ability to service debt. Lockdowns from late-March to May drove commercial property debt delinquency rates to more than double, from 3% to 7%, driven primarily by hotel / lodging and retail.
- The economic disruption from pandemic containment efforts has jostled valuations across many property types, which still are below where they were at the start of the year, which in turn contributed to delays and cancellations of commercial property transactions.
- States consider additional lockdowns amid elevated levels of infections. The impact of the second round of lockdowns would likely look different from the first:
- Delinquency rates would increase, albeit at more moderate pace, and remain high.
- Valuations could remain subdued, with exception of property types that have proven to be unaffected or benefit.
- Transaction activity would remain low, despite more distressed sales due to challenged business plans and ability to refinance.
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