Capital Markets Update: Special Report Part Two

  • Apr 08, 2020
  • Research

Part Two: Special report on COVID-19 and the oil impact on the economy, real estate community, and capital markets.

This special issue of the CWCapital Markets Update analyzes the potential implications of two macro events, the COVID-19 crisis and the simultaneous collapse of world oil market prices. Our report contains information gathered from several public sources as well as our own proprietary research.

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%

Impact 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 42 states affecting 95% 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

Impact on Real Estate Markets

Voluntary Closures:

Whether due to demand drop off, or a desire to limit liability, multiple businesses have shuttered. In the voluntary category, we find major operators such as:

Marriott—Announcing layoffs of “tens of thousands” mid-March as multiple hotels closed
Simon Properties—Closing all U.S. properties

Forced Closures:

Multiple states such as New York, California, Maryland, Illinois have various mandatory closures of non-essential businesses, all bars, restaurants, shopping malls etc.

Resulting Uncertainties and Other Considerations:

• Uncertainty on length of closures, responsibility for lease payments
• Multifamily impacted mostly by job losses, other closures

Impact on Capital Markets

Credit market spreads widen dramatically—CMBS cash bonds widen almost 200bp at senior level, almost 600bp at BBB-, assuming that liquidity can be found.

Margin calls drive many mortgage investors toward insolvency—echoing events from the previous financial crisis.

Primary market issuance declines, loan pipelines marked to market, lending likely to slow.


Download the full report here.