Retail lending remains active with insurance companies and local banks
JLL Capital Markets retail debt placement teams close nearly $543M worth of loans for retail assets since July, signaling lender confidence in the market
CHICAGO, Dec. 21, 2020 – Various coronavirus stay-at-home orders affected retail investment sales transactions in the early days of the pandemic, but insurance companies and local bank lenders kept capital at the ready for deployment into retail. With historically low interest rates, JLL Capital Markets retail debt placement teams have closed $542.83 million worth of retail financings since July, demonstrating the lending community’s confidence in segments of the retail sector.
“There is a myth that retail is unfinanceable today, and that’s absolutely untrue,” said Christopher Drew, Senior Managing Director, Capital Markets, JLL Americas. “When structured appropriately, plenty of financing is available to investors. In fact, certain lenders, like local and regional banks, never stopped lending.”
According to Drew, “Lenders seek the same characteristics for retail that investors pursue, which is well-located assets with essential tenancy.” This means lenders – and investors – are often looking beyond primary markets and for opportunities such as grocery-anchored retail with limited competition. They are also interested in strong sponsorship, which plays a vital role in closing transactions since lenders evaluate whether a borrower can maintain the property and tenant relationships.
These factors are present in the 29 JLL retail transactions closed between July 1 and November 30, 2020, of which grocery-anchored retail comprised 12. The remaining loans were a mix of non-grocery-anchored, shadow-anchored retail, retail condominiums and single-tenant assets.
For all the transactions, the average loan-to-value (LTV) was 62 percent with an average interest rate of 3.96 percent. Grocery-anchored deals had an average LTV of 63 percent and average rate of 3.79 percent, with an average loan term of 10 years.
Record-low interest rates are also bringing new investors to the sector, according to Claudia Steeb, Managing Director, Capital Markets, JLL Americas.
“Investors notice these rates and see an opportunity to expand their holdings and balance out their portfolios with retail acquisitions, possibly at a discount.”
Steeb also says flexibility is vital to retail lending, which is causing the type of lender providing the most agreeable terms to shift.
“Even though we are working with all types of lenders, insurance companies and local and regional banks are paving the way toward getting retail deals done in 2020,” Steeb explained. “They have flexibility, tend not to have significant exposure in any particular asset class and are able to arbitrage the market so when competitors pull out, they can jump in and gain extra yield for their portfolio.”
Steeb points out that JLL is seeing other lenders, such as bridge lenders, debt funds and CMBS, underwriting well-located retail assets with strong sponsorship and existing supportable cash flow to determine if they can sell their loan committees and/or rating agencies on the retail loan opportunities.
The lending outlook for retail is showing additional positive signs. Lenders are expanding their focus beyond grocery-anchored properties to include assets tenanted by discounters, essential and internet-resistant retailers and, while many of the loans have been smaller in size, JLL debt placement teams are starting to see more interest in larger retail loans.
JLL Capital Markets is a full-service global provider of capital solutions for real estate investors and occupiers. The firm's in-depth local market and global investor knowledge delivers the best-in-class solutions for clients — whether investment sales advisory, debt placement, equity placement or a recapitalization. The firm has more than 3,700 Capital Markets specialists worldwide with offices in nearly 50 countries.
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JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. JLL shapes the future of real estate for a better world by using the most advanced technology to create rewarding opportunities, amazing spaces and sustainable real estate solutions for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $18.0 billion in 2019, operations in over 80 countries and a global workforce of over 92,000 as of September 30, 2020. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit jll.com.