Much of the commercial real estate industry was fretting over the fallout of destroyed businesses and unpaid rents during the month of April. But some of the country’s biggest debt players are bracing themselves for far worse in May.

“When the closures started … there was an immediate reaction — rightfully so — of uncertainty and fear,” ACORE Capital Managing Director Tony Fineman said during a Bisnow webinar Thursday. “Everyone thought that no one would pay their rent in April, no one would pay their debt service in April and everything would fall apart by April 10.”

Largely, the industry is making it through April, but he is not so sure that is going to last.

“April wasn’t horrible, anecdotally, in terms of the collections of debt services … [but] I feel like there is a wave coming," he said.

Much of the country’s economy has been put on ice because of drastic measures governments have taken to try to slow the spread of the coronavirus. In New York City, for example, the lockdown has been extended to May 15 as the state's death toll has soared to more than 12,000 people.

There is growing friction between landlords and tenants, both in the commercial and residential worlds, over rent payments. Landlords have warned that without rent, they may not be able to meet obligations to lenders, causing further economic carnage.

Fineman, describing the situation as “surreal,” noted that it is just the beginning of the crisis. He added that deal flow for ACORE, a national debt firm with nearly $17B in active loans and investments, has slowed significantly, too.

“Trying to find someone who is actually transacting, it’s a needle in a haystack to me today,” he said, adding that the loans he has closed are ones that were already signed up when the pandemic began. “While we are seeing deal flow, the transaction volume is obviously down significantly. ... And when there is a transaction, it wouldn’t be a truth for any of us to say we know where we are supposed to be pricing things and where we’re supposed to be executing. I think there’s a lot of price discovery.”

TD Bank Regional Director of Commercial Real Estate David Friedman said May will be when the “rubber hits the road." The past few weeks have been spent working through what he calls the first innings of loan waiver requests, and the bank is preparing for that to step up in the next few weeks. He is now trying to anticipate the kind of stress there may be in the broader market and within his existing portfolio.

“April payments, while we've gotten requests, I was pleased with the percentage of sponsors that came and paid both [principal] and [interest] on time,” he said. “The majority of my time with my team and with leadership is getting prepared for the wave that has not even gotten close to cresting — it will really pick up steam in mid-May."

PIMCO Portfolio Manager Jeffrey Thompson said most of the deals that his firm has been signing come from situations where the lender that initially was lined up has backed out.

“My thinking here is, yes, there is opportunity to reach for yield given the lack of supply … [but] what we’re focused on is what asset is going to come back first. The visibility on what a stabilized retail or hotel looks like 12 months from now is incredibly murky,” Thompson said. “So a smart strategy for this year is a defensive one. Logistics, some office, but with the right borrowers, the right assets and the right geography … rather than trying to get aggressive.”

As the crisis wears on, alternative lenders have begun to consider how they may potentially capitalize on the situation, as Bisnow reported last week. Over the past few years, equity investors and developers have stepped up on lending as banks have been more reticent to get involved in riskier deals. Some of those alternative lenders are now looking to make more loans as competition for deals thins out.

Nuveen Real Estate Managing Director and Head of Originations Jason Hernandez said he has heard anecdotally that the banks are not focused on real estate lending right now. Mortgage REITs are out of the game because of what has happened with their stock price, he said.

“Seventy-five percent [of our time] is defense, dealing with our existing portfolio and making sure our borrowers have liquidity. The other 25% is playing offense," he said. "We’ve got a pretty big mandate on the core fixed-rate side, so we’re really focused on, ‘Hey, how do we place money in that space when the market comes back?'”