Before Coronavirus pandemic hit in march, Necklaces‘Bob Beckman would provide lenders with copies of financial statements and tax returns when seeking financing.

This is no longer enough.

“I had to take an extra step in underwriting, getting bank statements from my sponsors and going around and showing the rent payments that have been received since COVID started,” said Beckman, senior financial director based at Philadelphia, in an interview.

Lenders want homeowners to have more skin in the game as they seek to limit their risk. As a result, the cost of capital increases. Beckman estimates that loan-to-value ratios have fallen by about 5% while debt service coverage ratios are on the rise. Average LTVs are now around 75-80% in multi-family buildings, 70-75% in industry and 65-70% in retail and office buildings, he said. In addition, assessors adjust their evaluations, adding more obstacles for owners to overcome.

“Underwriters are much, much less likely to accept a flyer on any type of deal with hair on it,” Beckman said. “Certainly, the foundation for any loan application has to be pretty solid. “

The Green Street Commercial Property Price Index is down 11% this year, led by falling prices for hotels and shopping centers. Failures on commercial mortgage-backed securities offers hits a record 10.3% in June, according to Trepp. Goldman Sachs expects defaults to exceed 11% in July, according to MarketWatch.

Industry support CRE Finance Council is put pressure on Trump administration to inject $ 250 billion to $ 300 billion in the commercial real estate sector to allow homeowners to cover 12 months of debt service payments, in addition to paying operating expenses and taxes.

“[The pandemic has] threw a wrench into things in many ways “, Rittenhouse Realty Advisors said transaction manager William Patton III. “The bottom line for our customers is that the risks and uncertainties in this post-COVID world increase the cost of capital and lead to more stringent underwriting requirements. “

Sometimes it’s not just about making financing more difficult – “it prevents some lenders from deploying capital at all,” Patton said.

Debt Fund and non-bank lenders are ready to finance premium projects interest rate ranging from 7% to 12%, payable over one to three years, according to Patton. Obtain financing on construction loans remains a challenge for many developers, some of whom have to borrow at 60% LTV.

“On the construction side, you will need to be well capitalized or have a strong relationship with your lender and have a proven track record or else it will be very difficult for you to get a construction loan,” Patton said. “Rent growth assumptions are going to be much more conservative. Some people subscribe to post-[Philadelphia’s 10-year tax] abatement value, which puts pressure on valuations. “