How the Commercial Real Estate Lending Environment Might Differ in a Post-COVID-19 World

private money lenders

It goes without saying that the global toll of the COVID-19 pandemic has been substantial. Like many other industries, the real estate lending sector has also been impacted. However, the market is still functioning, and investors still have access to financing. But how that funding is accessed, as well as the terms and structures of loan packages, have changed slightly to reflect the new environment. In this article, we’ll explain what investors should be aware of and how construction lending can evolve as the nation recovers from the pandemic.

Americans on the move: How some multifamily and single-family markets have changed

The pandemic has allowed many residents living in high tax and cost-of-living areas to move to locations that are less-densely populated and have cheaper costs of living. John Burns Real Estate Consulting found in a recent survey that 59 percent of new single-family rental tenants are relocating from urban locations, with 41 percent of new tenants moving from other suburban locations. Only 32 percent of new single-family tenants moved from apartments, meaning single-family homes are not enticing apartment renters to transition to detached houses or townhomes in large numbers. Instead, renters are benefiting from what they likely perceive to be more livable locations.

The 2020 U.S. Moving Migration Patterns Report from North American Moving Services shows Illinois, New York, California, New Jersey, and Maryland to be the top five states that people left. The most popular states for in-migration were Idaho, Arizona, South Carolina, Tennessee, and North Carolina.

Idaho led with inbound movers in 2020, as 70 percent of its population was moving in and 30 percent moving out, followed by Arizona with 64 percent inbound and 36 percent outbound. Tennessee and South Carolina both had 63 percent moving in and 37 percent moving out, while North Carolina had 61 percent inbound and 39 percent outbound.

Rounding out the top eight states for inbound movers were Florida, Texas, and Utah. Phoenix, Houston, Dallas, Atlanta, and Denver were the cities with the most inbound movers.

Suburban locations will play vital roles in the success of single-family rentals moving forward, including build-for-rent (BFR) communities, which are typically groups of single-family homes that benefit from the professional management and amenities of a full community. BFR communities are usually located near hospitals, military bases, and job centers with great walkability.

How private money lenders have navigated the lending market

Private money lenders have approached the recovering market in new and different ways. Some pressed pause on transactions initially to focus on their current portfolios, while others continued to fund new projects. Those that continued to lend may have made adjustments to their loan guidelines. These changes could have included:

  • Reduced loan-to-value (LTV) ratios; the industry average LTV ratio was around 70% before the pandemic and has now dropped to approximately 65%
  • Removal of at-risk property types from deal pipelines, such as retail and hospitality
  • Addition of more resilient property types to deal pipelines, such as residential and multifamily
  • Requiring or increasing interest reserves
  • Working with more experienced borrowers with higher levels of liquidity

There is also a group of lenders that are choosing not to make any adjustments to how they structure their financing packages. They’ve continued with business as usual, enduring the delays and adjusting for possible new market risks.

How traditional lenders navigated the lending market

Mortgage financing availability was firmly tightened at the onset of the pandemic and at one point reached its lowest level since December 2014. This tightening was driven by most lenders removing their products’ availability to borrowers with low credit scores and high LTV ratios. In addition to the adjustments to LTVs, maximum loan amounts have decreased across the industry.

Lenders like government-sponsored enterprises Fannie Mae and Freddie Mac have cut their lending volumes and made their underwriting more conservative. Importantly, they have instituted reserve requirements that require borrowers to put money in escrow for 9 to 12 months to cover future payments. In the past, they have financed up to 80 percent of a purchase price without reserves. This generally allowed real estate investors to acquire an asset with as little as 20 percent down.


Unlike traditional lenders who have strict regulations, private money lenders are nimble and can quickly pivot to meet changing market demands and unique circumstances. This has been more apparent throughout the pandemic, an event that has forced many lenders to adjust to an unexpected environment and which may result in some mitigation measures continuing into the near future.

With the speed and guidance of experienced and trusted lenders, commercial real estate developers and investors can continue to move forward and succeed, even in the midst of a market downturn.

Broadmark Realty Capital Inc. (NYSE: BRMK) is an internally managed real estate investment trust (“REIT”) offering short-term, first deed of trust loans secured by real estate to fund the acquisition, renovation, rehabilitation, or development of residential or commercial properties. The company has originated over $2.2 billion in loans since its formation through a rigorous and responsive underwriting process. Have questions? Contact one of our lending experts today.

Broadmark Realty Capital lends in Denver, Florida, Georgia, Idaho, Maryland, North Carolina, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, Washington D.C., and Wyoming.

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