The future of project finance in a post-COVID world
The ongoing COVID-19 pandemic continues to greatly impact all areas of the economy, sparing no sector, including project finance.
As we speak with our contractor community, we notice that traditional lending is tightening up. However, the credit crunch is not evenly distributed. Some forms of project financing and capital are flowing as actively as ever.
3 Financial Trends We’re Hearing About
Refinancing old projects to keep the lights on
The current turmoil means that many property owners are short of cash to pay the bills. The media has been all over this story, focusing their headlines primarily on federal government solutions, such as the paycheck protection grants and disaster relief loans; however, behind the headlines a new trend is emerging - driven by contractors. Projects that were completed up to three years ago may qualify a property owner for rescue capital being offered by a select group of energy finance lenders. Available in Florida, California, New York, and a dozen other states, this new form of rescue capital is available with low, fixed-rates and repayment terms up to 25 years. Through government-certified lenders, property owners can borrow up to 20% of the value of their property. For many of the contractors in our community, being able to inform their clients that help is available has taken on a new sense of urgency.
Transition period drives small retrofits
As people begin to return to work, caution and uncertainty are driving property owners to reconsider how they manage their space. Over the coming 12 to 24 months, capital is expected to be diverted from large traditional projects to restacking interior spaces both in order to accommodate the new demands of social distancing and also in response to tenants who vacate or reduce their occupied space. There is less and less of an appetite for large open space environments where office workers or retail patrons are close enough to rub elbows. As occupants push property owners to provide safe and healthy environments, it will fall on the contractors to do the work and capital providers will be needed to fund it. Increasingly, unconventional sources of capital that many contractors are well acquainted with, such as PACE, are being applied to this new need for fit-out financing.
The new normal drives large retrofits
Once the economy begins a full-speed recovery, a new norm will set in. Trends that have been undercurrents of commercial real estate for the last several years - such as the move away from shopping malls; the need for affordable housing; and the practice of remote working - will have accelerated to such an extent that there will be an imbalance of supply-demand across entire asset classes within commercial real estate. To reset the balance between supply and demand, many properties will need to be repositioned and fully retrofit as new types of properties. Some offices will become apartments and shopping malls will become logistic centers. Nearly all new construction will be on hold as excess supply is repositioned. This will be the age of large retrofits.
We are holding firm to the belief that we are all in this — and will get through it — together. And if history is any guide, the eventual aftermath of this shock event will see renewed success for our economy and communities.
We are here for you and the many contractors and property owners throughout the country.
Contact us today to learn about Unety’s financing options, competitive rates to start, continue or restart your projects with lower monthly payments.