Commercial Real Estate Capital Markets Advisory

Last week, I had a discussion with Dominic Chu at @CNBC about the misperception that distress in commercial real estate poses a risk to capital markets, the banking system, and the wider economy. Unfortunately, the sector is often seen through the lens of the office market, which indeed confronts numerous hurdles. Yet even there, we see a divided landscape: modern, smaller, suburban office buildings show an average vacancy rate of 11.5%, in contrast to large, older, urban constructions which approach 25%.   It's important to remember that there is a substantial variation across commercial real estate asset classes and as such, I continue to point to the varied conditions among different product types, their rent and occupancy profiles, and the degree of loan performance-related distress.   The rapid rise in interest rates and the unlikely scenario that rates will revert to near zero mean price adjustments. However, the degree of re-valuation must be based on each market, product type, and situation. We are seeing examples of situational distress caused by maturing loans in all property types, where our team is helping owners raise equity, recapitalize, or restructure deals or execute sales. Although there are growing opportunities for astute buyers, a wave of fire sale-priced quality assets is unlikely.    For more insights, the full conversation is available at: https://lnkd.in/gUSXwiJZ

Have you been wondering (like me) where the budding distress in commercial real estate is translating into discounted transactions? Banks and other lenders are beginning to sell loans tied to commercial property assets in order to minimize their exposure to the real estate sector and raise cash. Recent deals include the sale in January of a $401 million bundle of loans tied to Houston apartment buildings for $370 million (a 7% discount) by Amerant Bank. CIBC has also just hired CBRE to market a $316 million package of office loans in the US. Experts expect more of these transactions as the commercial real estate market faces a huge oncoming wave of debt maturities. JLL says that $2.1 trillion of commercial property debt will expire between now and the end of 2025 in the US and that $265 billion of equity will likely be necessary to refinance those loans. Not every landlord is going to pour in the additional cash to hold onto properties and distress will pick up. Fitch Ratings predicts that office defaults in the securitized debt market, for instance, will rise to 9.9% by the end of 2025 - that's higher than the 8.5% default rate during the great financial crisis. Most lenders don't want to take over property assets, according to Bliss Morris, a loan sale advisor, because of the large costs of operating those properties, including insurance and maintenance. "The bankers that we talk to today would just as soon exit the loan on as high a value note as they can versus getting into a long-term, drawn out foreclosure," she said. By selling loans today, lenders can offload debts before problems materialize and recoup more value. William "David" Tobin, another loan sale advisor, said that his group tracked $15 billion of loan sales in 2023 and expects a similar volume to trade in 2024. Read the full story at Business Insider: https://lnkd.in/dGWcZtPi #commercialrealestate #distresseddebt #banking

Simple but still interesting look at how large banks have mostly stayed the course in terms of their long-term deployment in the CRE capital markets while small banks have grown so much more aggressive since 2015. So how does that impact the present or the near future? From 2015 to 2022, smaller banks would typically lock in longer loan terms than other types of lenders, so we may still have some runway before the full wave of small bank loan maturities, but those loans will come due at some point over the next few years. I haven't yet heard quite as much of pending distress coming from the small banks as I have from the larger banks and other lenders. Depending on where rates and LTV's go from here, it will be interesting to see the opportunities that result from the small bank loan maturities. #capitalmarkets #investmentsales #commercialrealestate #realestateinvestment #realestateinvesting