Last week, over 4,200 of our closest friends met virtually for the annual January conference by the Commercial Real Estate Finance Council, which is usually held in Miami. While we have all learned to go without in the last year, going without seeing the “smart resort wear” of our colleagues was almost too much to bear. Thankfully, CREFC put together an informative and interactive conference – complete with a virtual lobby that played in between sessions featuring a guy on his cell phone walking in circles. Talk about realistic! Best of all, CREFC honored the real reason we attend conferences and provided a “virtual swag bag.” All in all, CREFC did the best they could under the circumstances and we agree that’s all we ask of anyone or thing at this point.
While the January CREFC conference is typically used to “take the temperature” of the industry to get a sense as to what we can expect for the year ahead, this year was a bit different. First, given the events of 2020, we are understandably tired of having our temperatures taken and second, we’re experiencing a disruption affecting, well, everything, so trying to forecast what will happen in commercial real estate finance feels like arranging deck chairs on the Titanic (ever hear a bunch of finance folks talk about vaccine rollouts?).
Our own Rick Jones moderated the Industry Leaders Roundtable with Leah Nivison, where the general consensus was that 2021 will be good because, compared to 2020, anything will be good. We have learned a lot in the last year and 2021 will benefit from the hard work that our industry has done to adapt. Yes, there will be new loans originated. That said, just as we’ve had waves of COVID-19, we expect to see additional waves of loan modifications as more loans will be worked out and/or go into special servicing. For the first wave, we depended largely on payment forbearances and the use of reserves towards debt service. Now, in the second wave, a lot of those loans have come back and we’re seeing preferred equity come in and the use of PPP loans. But there is a sense that we are kicking the can down the road as these are still single-use solutions that work to infuse capital and keep loans current – for now. Perhaps we should take comfort in the lack of sessions on foreclosures and distressed asset sales.
We also appreciated that CREFC included an entire session on Diversity, Equity and Inclusion where the panelists shared their experiences in commercial real estate finance and stressed that the road ahead will involve uncomfortable conversations, lots of education and for some folks, a complete reprogramming of the way they think about the work that we do, who does it best and what it takes to succeed in this industry. We look forward to CREFC’s new Diversity and Inclusion Committee’s programming and for continuing the important work of creating an industry that is welcoming, supportive and a place where all can be successful.
Now it wouldn’t be a CREFC event without someone giving their two cents on what inning of the cycle we’re in. Fortunately for those who are sports-challenged, the consensus seems to be that maybe we should focus on the fact that the stadium is empty first. And it’s going to take some time to fill those seats back up. The good news is that everyone is tailgating, socially distanced, of course, and waiting to get back into the game. The predictions for 2021 in the structured finance market are optimistic. SFR and multifamily are expected to steadily increase after a slight dip last year and the conduit, SASB and CRE CLO volume promises to be promising. Here at Dechert, we’ve already started the year with a flurry of activity and deals across all our product lines; so far, those predictions don’t seem far from reality.
Of course, the new administration could be the X factor in all this. That said, we can predict with relative ease that there will be at least one hot topic that President Biden’s administration will take on – ESG. ESG, or environmental, social and corporate governance principles, cropped up frequently in CREFC discussions and it won’t be going away anytime soon especially with a president who is focused on affordable housing and climate change. Investor and institutional attention on ESG is probably only going to increase and at some point, ESG will just be the normal course of business in our originations and securitizations.
So as we come up on the COVID-19 anniversary of the work from home order, let’s all start trying to fit back into our work pants because all signs point to 2021 being a busy year ahead and recovery being within sight.