Real estate and mortgage credit: a new, rather agile market

Real estate and mortgage credit: a new, rather agile market 1

Published on 12/10/2020 on

Since the beginning of the pandemic, all of us operators in the sector have been asked the same question from various sides and in different contexts: how will the real estate market change? And what will be the impact of this change for all loans secured by real estate and land?

The first instinct was to give a generally optimistic answer with which to explain that the impact will be temporary and transversal and that in a short period everything will return to normal.

And indeed many things have already returned to normal: albeit with the necessary precautions, we have all returned to some old behavioral habits. After all, we all spent the same lockdown inside a building: obviously there is a base from which to start. Then, thought after thought, all the things that aren’t working yet came to mind. I don’t think I have enough space to mention all the situations in the real estate market that are still suffering the consequences of the pandemic; I am going to mention only one, so large and sensational that it contains them all:


For those of the readers who have had the pleasure of being adopted (at work and otherwise) by this city or simply have been able to spend time there in the last 5 years, what I am about to say will sound very familiar. Until last January there was a crisp air. Milan had shaken off the label of a gray and smoky city to the sound of initiatives in step with the times, efficient and modern infrastructures, attracting the attention of the whole world with a consequent growing trend for practically the entire economy that gravitates around the city.

Today Milan is depressed, convoluted. Closed hotels, shutters down. The bartender in the office, after an initial period of self-induced optimism, has a perennial sad look. The mayor, challenging the logical consequence of looking crazy, begged the Milanese not to return to the city; to date it is not known when it will happen, and if it will happen.

The phenomenon of smart-working is not new in 2020; it is a process that began inexorably 10/15 years ago which has suddenly accelerated its effects. So the problem is not the change, but the fact that it is happening drastically. Milan and all the big cities in general have not had the time to adapt their ecosystem to change and this is generating a strong and painful impact.

This is generally true in describing the post-pandemic effects: the problem lies in the difference between change and adaptation time. These situations are typical of a natural disaster, which however normally affects limited and more or less isolated places; in a globalized world it is as if we were experiencing the effects of an earthquake on a world scale, which we have never experienced in book memory.

Once these reflections have been made and returning to the initial question, how can we think of giving an answer? Perhaps the right answer, which could make us appear unprepared, is the most honest: we don’t know. It is impossible to intercept all the trends of a complex market such as the real estate one, for at least three reasons:

the world is too interconnected to be able to foresee all the consequences related to the temporary or permanent closure of a business;

the real estate market is etymologically slow and therefore being slower than other sectors we will be able to see all the consequences;

we do not yet know exactly how the world will react to a possible new widespread wave of infections and what the consequences may be for productive activities;

To this context of objective uncertainty, the variable NPL / UTP is added. The awareness has now spread that over the next 6/9 months banks will face a new wave of bad debts and defaults, just when it was thought that they had started to stem the problem. Once this situation has been acknowledged, operators are certainly not allowed to fall into despair. We all know that opportunities are hidden in the folds of a crisis and that by definition it is part of our job to address all problematic situations, focusing on the positives and solutions. I would like to focus on some general concepts:

it will never be possible to completely prevent physical interaction between people, which is natural and which can never be completely replaced by the remote. For us Italians then, let alone! Thinking about it, all interactions of this type born in the past have always resulted in a physical encounter (I contact you on Linkedin, I meet you in person). The vast majority of the interactions we have remotely today and that we herald as a new normal have been born of face-to-face encounters. This means that the need to meet in the long term will prevail over social isolation, with all the consequences of the case for the real estate market;

– change means transformation, not destruction: this is also a law of nature. However strong the slap from Covid will be, sooner or later we will feel the blow and find another way to use our properties; it happened to the old factories of the early 1900s, to the old farmhouses of the mid 1900s, it will also happen to all those buildings (many or few) whose intended use will become obsolete;

– most of the current NPL / UTP market operators are the children of the great wave of bad debts that has been created in the last decade. Today servicing is a tested, focused and specialized activity; the old wave found banks and operators unprepared, the new wave instead will find an organized and mature market, much more efficient and evolved;

At this point, albeit with due caution and the precautions required, we reformulate the answer to the previous question: we don’t know, but we’ll be ready. We will take the best feature from the virtual world and bring it to all sectors: agility.

We will work in an agile, fast, liquid way. We will be ready to change our minds, we will dismantle old paradigms and build new businesses and new activities; we’ll roll up our sleeves, we’ll do whatever it takes. Whatever it takes, to paraphrase one of the most famous mottos of this complex year. If we have to change the intended use of a property, we will do it without thinking twice.

We will not skimp on investments in small and large capex, as long-term investments are worth their weight in gold during these times. We will invest in specialized and dedicated servicing activities, because agility is a commodity that is only found in boutiques.

If the debtor asks us to sit at a table, we will do it more willingly; if he doesn’t, we’ll invite him. We will conduct our business with confidence; even if certain situations seem without solution, history teaches us that the solution has always been found.

Emanuele Grassi

GMA deals with NPL mortgage loans, property management and development to guarantee loans and securitization transactions. Contact us.