Forecasters, political or weather (think Punxsutawney Phil) seldom admit prior failures. Casey Stengel astutely observed that one should “never make predictions, especially about the future.” With due respect to Casey, I have agreed to engage in the fruitless endeavor of forecasting the immediate future of commercial real estate and those lawyers who practice in that arena.
Pessimism is not in the DNA of the CRE industry. However, 2021 will present challenges for CRE. Residential real estate will continue to benefit from low-interest rates and high demand, notably multi-family housing. Although calls for robust tenant protection and continuing eviction bans will provide headwinds. Tax incentives and abatements for affordable housing, and opportunity zones, may face elimination as local government reacts to budget shortfalls. Non-residential assets face a longer recovery time. Despite recent vaccine distribution, lockdowns persist. Urban CRE will be less popular in areas where respectful political discourse have given way to open hostility. Elected officials must get substantial financial help into the hands of those in need, many of whom are unemployed due to the lockdown of small and medium-sized businesses.
Some CRE hotels, for example, have already been hurt by the enhanced scrutiny of the financial system and new hurdles to flexible real estate lending practices. Government has taken notice of the recent all-time high of $3.06 trillion in CRE debt and the 10.2% of $600 billion in CMBS loans now in “special servicing.” Loan distress is fast approaching the levels seen in the 2008 financial crisis.