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Capital Markets Update: Special Report

  • Mar 31, 2020
  • Research

In this issue: An introduction to our Macro Tracker, COVID-19 and oil market trends, and its impact on the economy.

As part of our commitment to serve the commercial real estate community and provide our users with the best possible insight and analytics during these unprecedented times, we have issued a special edition of our Capital Markets Update, which includes:

•  Impacts on the economy, real estate, and capital markets
•  Risks and opportunities across the CRE sectors
•  Introduction of the Macro Tracker

This Capital Markets Update analyzes the potential ramifications of two macro events that can only be described as extreme outliers, the COVID-19 crisis and the simultaneous collapse of world oil market prices. The resulting global public health crisis, restrictions on movement, and crippling of world economies are unprecedented in our lifetimes. At this point in time, the full extent and duration of these events cannot be determined. However, we can do our best to stay on top of the developing situation to identify both risks and opportunities. Our report contains information gathered from several public sources as well as our own proprietary research.

As a service to CRE investors, we have rolled out the Macro Tracker, a simple one-page summary which allows market participants to follow high-level developments on over $526 billion in commercial loans collateralized by over 20,000 properties, including key data points such as loan defaults, credit spreads, and primary market issuance. With the help of RealINSIGHT technology, we expect to continue to expand the Macro Tracker over the coming months into a comprehensive study comparing current market trends with those occurring during historic macro events such as the financial crisis of ’07-’08 and the sovereign debt defaults of the 1990s. We will also use this technology to take a deeper dive via data-driven stress testing to identify risks at the transaction and property levels.

Macro Events

•  COVID-19—The global pandemic began in late December 2019 and continues to spread and wreak havoc around the world.
•  Oil Collapse—With a massive demand drop, production disagreements spark a price war and WTI declines 54%.

Impacts on the Economy

Global Supply Chain Shock

Beginning with disruptions in the production of medicine, consumer goods, and other basic products, impacts, and complications are felt throughout the supply chain.

Total Cessation of the US and Other Economies

From travel bans to closings of malls, bars, restaurants, and all non-essential businesses, there has been some form of lock-down in 32 states affecting 80% of the U.S. population so far.

•  Job Losses—St Louis Fed estimates short-term unemployment could reach 30%
•  Transportation/Lodging—Airlines, hotels, trains, buses, and other public transit are all curtailed
•  GDP—Likely to decline by 25% to 50% according to Goldman Sachs and BOA forecasts
•  Operations—Uncertainty around rental payments, debt service, personnel, and other operating expenses
•  Government Intervention—$2 trillion Federal stimulus plan applied

Download the full report here