Will we see echoes of 2008 by the fall?
Soon after COVID-19 hit the U.S., economists knew we could very well see massive layoffs, economic struggles, and threats of a recession. We are now seeing much of what we feared: millions unemployed, and tenants unable to pay rent, with the potential for a snowball effect that could seriously damage the real estate sector. Despite early hopes for a sharp, V-shaped economic recovery, many experts now anticipate a much slower economic rebound.
When tenants are unable to pay rent, property owners cannot pay their mortgages, leading to a significant increase in the number of individuals and corporate tenants in forbearance. While in some states the spread of COVID-19 has slowed, in others, we’re seeing record-breaking spikes in cases. States like California and Texas are seeing a resurgence, while Florida is setting records for daily numbers of new cases. With no vaccine currently in production and keeping people safe and healthy remaining the top priority, this “new normal” seems set to continue for the foreseeable future. With limited job opportunities and limited ways for many retail-based or foot traffic-dependent companies to bring in revenue, many of those in forbearance right now will likely face foreclosure.
Initially, when laid-off tenants were unable to pay rent, many lenders allowed these individual borrowers to go into forbearance to avoid another foreclosure crisis like we saw in the Great Recession. Since many of these lenders opted for 3- to 9-month forbearance terms to start, we are likely to begin seeing borrowers determine whether they can continue with loan terms or move into the pre-foreclosure process starting this fall. While big businesses may be able to stay afloat, many individuals and small businesses may be unable to keep up with their mortgages.
What does this mean for lenders?
Unfortunately, it’s likely there will be an increase in foreclosures come fall, when those put into a hole due to the COVID crisis are unable to resolve the defaults on their loans. With these foreclosed properties, banks and lenders will be left with many properties to either sell or tend to until the economy begins to recover. This comes with additional responsibilities that banks and lenders do not want, such as landscaping, facilities, HVAC, and other needed maintenance to keep the building healthy and in good shape.
What about investors?
With an increase in foreclosure properties, this could be a good opportunity for those looking to invest in properties. There will likely be a surplus of properties as lenders look to improve their balance sheets, and basic supply and demand principles would suggest that investors could get some great deals. However, investors need to remember never to be hasty when it comes to these decisions. Invest in thorough due diligence on any property before making a purchase.
We help you do your homework
When you’re left with foreclosure properties, it’s important to know what you are getting into. Is the property still valued the same as when the loan was originated? What shape are the facilities in? Has any property damage or lack of upkeep impacted the value? For retail, hospitality, and office properties, it’s possible that even over the last few months, upkeep and general maintenance may have taken a hit; some tenants may have been unable to keep up with regular maintenance due to COVID-related restrictions or business challenges.
Foreclosure analysis services will be the key to a smoother process if and when you’re left with foreclosure properties or if you’re looking to invest in them. These modified property condition reports are crucial and specifically tailored to lenders preparing for foreclosure or for parties interested in purchasing a foreclosure property.
Whether you’re foreclosing on or wish to invest in a foreclosure property, proper due diligence can ensure that you know what you’re getting into and help you make the best and most informed business decisions.
Why EBI?
When we refer to our due diligence team members as experts, we mean it. From our Client Services team to our in-field assessors, engineers and architects, our due diligence team is made up of highly educated professionals with extensive experience in real estate due diligence. As a nationwide firm, despite travel bans and stay-at-home orders, our nationwide network of local experts persist in our support of real estate banks and lenders by innovating and developing new ways to serve clients.
We stand by our motto: quality, integrity, and collaboration. Our quick turnaround times, project flexibility, and commitment to our clients are the result of more than three decades in business. We’ve been there for our clients during tragedies, recessions, market crashes, and this global pandemic, and will continue to provide the insights our clients need to make the best business decisions.
Keep an eye out for the next EBI blog post, which will take a deeper dive into the foreclosure analysis process.
