Alliant’s Peter Margolin On the Deals That Will Survive Coronavirus
The spread of coronavirus and subsequent shutdowns have introduced an unprecedented level of uncertainty to commercial markets throughout California and around the world, leading financing entities to greatly reassess their strategies moving forward.
Peter Margolin, commercial loan originator for Alliant Credit Union, has led the financing for several West Coast properties for borrowers, and he said the balance sheet lender is still in the market closing transactions and pricing new deals.
Margolin answered questions after social distancing policies and statewide shutdowns were rapidly enacted across the country in response to the outbreak of coronavirus. He explained to Commercial Observer how the market could fundamentally change due to the response, and where a firm like Alliant goes from here.
Commercial Observer: What trends were dominating this year more than others? What kind of activity are you seeing?
Peter Margolin: Right up to the day we began social distancing, we were still seeing a lot of activity in the market as investors looked to take advantage of low interest rates, and we expect that activity to be able to withstand the effects of the pandemic, even if there is a break from widespread market activity for a specific amount of time. Investors want to own in Southern California, so there’s a lot of competition for transactions. As we evaluate deals for financing, some are a good fit for our portfolio, and some have too much lease-up and buildout risk.
… California still remains uber competitive, at least until just before the coronavirus-related social distancing became widespread. Even now, we’re continuing to work on a deal for an office building in a secondary market city in California, leased by a government agency with no out-clauses. Those types of deals will still remain attractive to lenders in the uncertain environment we’re navigating.
What are the best strategies now to survive a recession?
It’s unfortunate yet inevitable that hospitality and retail real estate investors will suffer losses from the coronavirus pandemic. Student housing operators will likely also see an impact as students leave campus to head home early and try to get out of their apartment leases. The borrowers that will best survive a downturn will be those who have deeper reserves.
Why have you not been very big on retail or office?
Anyone who has witnessed the flood of consumers into grocery stores and big box retailers over the last couple weeks might be tempted to think grocery-anchored shopping centers are stable, but this short-term bubble will likely pass and consumers will return to normal shopping habits once we emerge from the pandemic. As consumers become more accustomed to having everything they need delivered to their doorstep, it remains to be seen which retailers are strong enough to survive.
Similarly, there are a lot of questions for the office market. It will be interesting to see how workplace norms change once organizations reopen their offices for business. Will employees grow accustomed to working from home and demand more flexibility in their work location? And will business leaders who have previously been reluctant to embrace remote working now see that employees can be productive from outside the office? If so, there may be a shift that forces companies to look at how much space they will truly utilize if more employees start working effectively from home.
Is it a good time to invest in the self-storage sector? Why or why not?
Self-storage assets tend to be fairly resilient through both economic booms and downturns, making them a sound investment at almost any point in the cycle. During a recession, for example, families may need a place to store furniture and sentimental items if they downsize into a smaller home.
There has been a decent amount of overbuilding of self-storage facilities in some markets, but opportunities are plentiful in many secondary and tertiary markets. Investors need to have a deep understanding of the local marketplace: the supply and demand, competition, demographics and customer needs. Understanding the competition on a hyper-local level is also important.
Can you talk about emerging lender appetite for manufactured housing communities?
Manufactured housing is much more attractive and sophisticated than it used to be. This under-the-radar property type holds widespread appeal for multiple demographic groups. Many older residents enjoy living in manufactured housing communities for the amenities such as clubhouses, interactive games like shuffleboard, pools and fishing. Meanwhile, younger demographics appreciate the affordability and ease of owning their own home. We just quoted two high-end communities in California this month and are very interested in adding more of these properties to our portfolio.
What’s next for Alliant Credit Union?
The outlook today is very different than what it was even just before the pandemic crisis began. We’re poised with balance sheet capacity and the expertise to come out of this cycle above water. In the coming weeks and months, we’ll be working very closely with our retail and hospitality borrowers as we navigate the impact of this pandemic to their business. It’s unclear where new originations will go, as the market is shifting too fast. So we’ll be watching the market and adjusting our strategies as it moves.