Some Institutions Still Lending on Retail

The retail sector downturn started even before the pandemic and has suffered more than other property types this year. But some institutions are willing to lending on retail assets, said JLL, Chicago.

CoStar Group, Washington, D.C., reported more than 11,000 store closures this year and Wells Fargo Securities, Charlotte, said retail property vacancy rates increased sharply during the third quarter. October and November data point to vacancies rising even further in the fourth, Wells Fargo Securities said.

“Not surprisingly, rising vacancies are putting downward pressure on [retail] rents,” Wells Fargo Securities said, noting rents in the beleaguered sector fell 0.6 percent decline between July and September. Retail prices fell 5.2 percent in October, more than any other property type.

But JLL Capital Markets said some capital sources have capital ready to deploy into retail.

“There is a myth that retail is unfinanceable today, and that’s absolutely untrue,” said Christopher Drew, Senior Managing Director of Capital Markets with JLL Americas. “When structured appropriately, plenty of financing is available to investors. In fact, certain lenders, like local and regional banks, never stopped lending.”

Drew noted lenders seek the same characteristics for retail that all investors pursue: well-located assets with essential tenancy. He said this means lenders and investors often look for opportunities such as grocery-anchored retail with limited competition. They also look for strong sponsorship because lenders evaluate whether a borrower can maintain the property and tenant relationships.

Claudia Steeb, Managing Director of Capital Markets with JLL America,s said record-low interest rates have brought some new investors to the sector. “Investors notice these rates and see an opportunity to expand their holdings and balance out their portfolios with retail acquisitions, possibly at a discount,” she said.

Steeb said flexibility is vital to retail lending, which is causing the type of lender providing the most agreeable terms to shift. “Insurance companies and local and regional banks are paving the way toward getting retail deals done in 2020,” she said. “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.”