🏢 The Double Hit: How Shutdowns Impact CRE Values and Financing 🚫

🔍 Uncertainty and Shutdowns: The Effects on CRE Prices and Lending 💼

The Double Hit: Why Shutdowns Hurt Both CRE Values and Lending Liquidity

When the government or financial markets experience shutdowns, commercial real estate (CRE) takes a double hit. Investors and business owners feel it first through falling property values—and then again when lending liquidity dries up. This one-two punch can stall transactions, derail development projects, and tighten credit conditions just when the economy needs confidence most.

1. The First Blow: Uncertainty Drags Down Property Values

Shutdowns create uncertainty. Whether it’s a federal budget impasse, a government data freeze, or a temporary halt to approvals, investors hesitate. Without clear visibility into future demand or economic stability, cap rates rise while property values decline.

For example, during the 2019 U.S. government shutdown, appraisals and underwriting timelines ballooned as economic data releases paused. CRE buyers adjusted pricing models downward to account for risk, especially in office and retail sectors already facing structural headwinds.

2. The Second Blow: Lending Liquidity Tightens

While values drop, financing simultaneously becomes harder to access. Banks and private lenders react defensively during uncertainty—tightening loan-to-value (LTV) ratios, adding covenants, or delaying funding decisions. SBA and USDA programs can stall entirely when federal employees are furloughed.

For investors relying on acquisition, construction, or refinance capital, this creates a gridlock. Even cash-rich borrowers face slower closings and higher spreads as lenders “wait and see.”

3. Ripple Effects on the Market

Shutdowns impact everyone—sellers, buyers, and tenants alike:

·Investors lose confidence and delay acquisitions.

·Developers face delays in permitting, inspections, or HUD/SBA-backed loan approvals.

·Lenders reprice risk, often pulling back from deals mid-underwriting.

This creates a feedback loop: as lending liquidity evaporates, transaction volume drops, further depressing comparable values and widening the bid-ask gap.

4. How Savvy CRE Players Adapt

Smart investors and brokers stay proactive during these periods by:

·Diversifying lender relationships across banks and non-bank channels.

·Using bridge or DSCR loans to maintain deal momentum.

·Keeping cash reserves ready for opportunistic acquisitions when prices dip.

At Medallion Funds, we help clients navigate market volatility with creative financing and data-driven valuation strategies. Understanding both the lending environment and market psychology is what separates winners from the sidelines.

Final Thought

A shutdown isn’t just a pause in government operations—it’s a pause in market confidence. The key to surviving “the double hit” is flexibility, strategic lender relationships, and disciplined underwriting.

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© 2023-2024 Bill Rapp, Medallion Funds LLC, Director of Capital Advisory