PropList Blog
Underwriting
Underwriting new deals is also expected to take longer. One alternative finance provider commented that if a short time frame was typically one month, now it would likely take two months to complete a deal. Anecdotally our lender contacts report that remote working for the most part is going well, but we have noticed some understandable delays on even simple matters such as signing of NDAs, which has taken longer as teams are remote and/or have limited access to scanning equipment. As for all market participants, there seems to be a broad understanding and acceptance that generally deals will likely take longer.
Many lenders are expecting some degree of longer term correction to asset values and also, potentially, asset use. There has been some discussion, for example, around whether the use of office assets might change dramatically now that many businesses and workers have been forced to get used to agile working practices.
Determining valuations of assets in the current market could also be challenging – a lack of recent transactions and certainty about what the future might hold will make the job of valuers harder and in the immediate term property inspections may also be difficult. However, lenders that weathered the GFC advised us that they are confident that they can draw on lessons learnt then to underwrite new opportunities effectively. This may involve taking into account pre-COVID-19 income/ NOI, extrapolating from the impact of the 2008/09 crisis on the asset or asset class, and ultimately looking at the fundamentals of the specific asset – is it a well-positioned asset in its class and sector that is likely to bounce back after COVID-19?
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