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How the Pandemic has Changed Commercial Lending in Florida

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If there’s one thing to know about South Florida, it’s that it is a land of real estate opportunity, specifically on the commercial lending side of things. From options such as office/retail space to multifamily units, there’s a variety of reasons people invest in these types of properties.

So, what happens to commercial real estate investing when a pandemic hits? We sat down with one of our expert commercial real estate team members, Frank Gallo, to discuss the landscape and what he sees for the future of commercial lending in South Florida.

How do you see the landscape for commercial lending in South Florida changing? How has it already changed?

Amid the COVID19 pandemic, a lot has changed and is still changing for lending institutions and borrowers alike. The change is expected to remain fluid now going into the coming months with an expected positive acceleration into the end of the year. The dust has started to settle as we build back into an economic recovery in this country as well as here in south Florida. During the beginning of COVID, we experienced many financial institutions shift their focus from doing new loans to spending their time helping existing customers with their current loans as well as leading the charge on the COVID19 stimulus response supporting the PPP loan program. While most lending institutions slowed or halting lending all together, some, such as credit unions continued to support their local economy by continuing to do new loans, in addition to supporting current members and stimulus efforts.

However, the landscape in commercial lending area will continue to shift as it has over the last few months, with borrowers and lenders focusing on purchasing and financing properties in the multifamily sector as well as some multi-unit industrial spaces. Most lenders and borrowers are carefully inspecting opportunities in the retail and restaurant sectors, as we still do not fully understand the impacts COVID19 has had on many small retailers.

Right now mortgage rates are very low, does this remain true for commercial loans as well?

Yes, however the two are different in many ways. Most commercial lenders have hit their floor rates with rates between 3.90-4.25% for commercial loans, some with varying terms and rates based on the risk of the loan. Home mortgage rates as we know have been at historical lows for the past 90-days, however are expecting to increase as we approach the end of the year. Commercial loan rates are expected to remain the same we lending intuitions understand the impacts of the economic recovery.

Since people are working from home what type of commercial properties are people interested in?

Many individual investors have shifted interest towards multi-family properties as well as industrial properties with some still seeking single tenant retail buildings in certain un-impacted industries. Such as pharmacies and retail medical providers. Each transaction is carefully reviewed by investors and lenders to determine the stability of the investment. With interest rates low, there are not many other investments that yield as high of returns that real estate does, so we continue to see demand in the commercial real estate sector. However, everyone is exploring these opportunities with caution to ensure the right investment is selected.

Is now still a good time for those opening businesses to get commercial loans?

I believe in the entrepreneurial spirit of our great country, more specifically here in South Florida and have seen many community members exploring new business opportunities, some business owners are even choosing to sell their businesses to move onto new ventures or enjoy the fruits of their labor in retirement.

Commercial lending and small business loans will continue to support these transactions, with most of the support coming from SBA loans, which have traditionally been the financing vehicle for business acquisitions and startups. As in traditional real estate/commercial lending, many Are doing extra planning and due diligence when purchasing or starting a new business amid COVID19.

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Are people taking advantage of commercial lending or are people being more conservative?

Both, most people who are purchasing or have purchased commercial property for a small business or other investment properties, know that this is a time to be a little more conservative but that during times like these, opportunities remain fruitful, but they need to be carefully looked for.

What do you think is in the cards for commercial lending in the future?

We still don’t fully know as anything can happen, but I believe we will have a solid future in commercial lending. The interest rates will hopefully remain low, which will help drum up new loans and an opportunity for some to refinance their existing loans. I also believe there will be movement by many as certain relationships with financing professionals will change. Small business owners will move banking and lending relationships and engage changes with their other financials professionals as well. Where there is change, there is an opportunity grow and prosper.

Regardless of the circumstances, what the TFCU team has learned through the pandemic is as an environment changes so does the landscape. Business doesn’t stop, it just changes. If you are looking to invest in a commercial property, you still can, but maybe consider something different for the time being and as things change so do your investments.