How to navigate the COVID-19 global market impact
The COVID-19 pandemic sent the world’s financial markets on a roller coaster ride, and the demand for real estate investment trusts was no exception. Much has been written about the impact on REITs from uncertain real estate asset values, mortgage and rent payments, funding constraints and tightening liquidity. On the flip side, some observers are seeing the wake of the crisis as an excellent time to buy distressed debt and commercial mortgage-backed securities (CMBS) at deep discounts. A record 939 commercial real estate funds were reportedly raising money in the market during April 2020, according to data from analyst firm Preqin.
Crises like this one have a way of bringing both challenges and opportunities. When a significant change is afoot, it’s essential to know where you stand at all times. Having a reliable operational and technology infrastructure can help handle the added processing strain and deliver reliable data as you adapt to unprecedented and unpredictable market dynamics.
Impact on loan administration and accounting
In a rapidly moving market, REITs are feeling added pressure on their operational systems and processes. Borrowers and lenders are renegotiating or adjusting loan terms—including rates, durations and covenants—all at once, creating a temporary but unusual spike in demand on loan administration and accounting systems and processes. Cash payment or repayment schedules are also under pressure, which demands timely and accurate adjustments to accounting accruals. These impacts have underscored the need for real-time tools that enable REIT managers to monitor and adjust collateral and repurchase agreements or other funding terms. REITs also need to be equipped to forecast the impact on cash, collateral and margin requirements under different scenarios, such as extreme rate shifts, credit crunches or market volatility.
Solutions to help navigate uncharted waters
REIT managers are in new territory. REITs must have a reliable operational underpinning, one that gives them the agility to adjust to dynamic market conditions that seem to change daily. Having a team of administrative and accounting domain experts on whom they can call is needed to address the volume and scale of funding, collateral margin and asset transactions and adjustments.
Web and mobile-ready technology can deliver significant advantages to REIT managers. By enabling access to real-time information, REITS can access information about portfolio investments, collateral and margin requirements, and the current status of rates, funding and cash flows. Funds stand to benefit from technology that can adapt and accommodate immediate, broad-scale adjustments to funding terms, changing collateral requirements, asset transactions, market data and securities events.
Managers also need to get ahead of market movements and map out their future course of action. For many, that means leveraging data analytics to explore what-if scenarios, assess value-at-risk, and understand portfolio sensitivities to sudden shifts in rates, indexes, or macro-economic market conditions.
Advanced technology, data science and operational expertise cannot drive or change market trends. However, in the right combination, they can undoubtedly help REIT managers steer and steady the ship in these uncertain waters.
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Alternative Investments, Commercial Lending, Fund Administration, Real Estate & Property Management