May 13, 2024 Bianca Barragán, Southern California
As optimism about interest rate cuts this year fades, many CRE professionals find themselves slogging through, working with what they have amid the uncertainty over what’s to come.
There’s stress everywhere, Cityview Chief Operating Officer and Chief Financial Officer Damian Gancman said at Bisnow’s Finance and Deal-Making Conference at the Westin Bonaventure Hotel and Suites in Los Angeles Thursday.
“Anyone who tells you they still have interest reserves is lying. Anyone who tells you their maturities aren’t causing problems is lying,” Gancman said. “The question is, does that stress lead to distress?”
Panelists largely agreed that despite mounting maturities this year alone and the crunch that interest rates are creating across commercial real estate, they aren’t seeing waves of distress yet — though there may be some ripples.
Lenders at the event said they are seeing stress among borrowers, but they also spoke about their willingness to work with troubled borrowers who are making good faith efforts to remedy their situations. Their openness to working with borrowers keeps that stress from becoming distress, even if only for a while.
“If the borrower is the right sponsor to be in the deal, we would really like to be able to support them to execute their business plan,” CIM Group Vice President of Investments Kelly Nealis said.
Nealis said if CIM still likes its basis on the deal and the borrower is proactive and has money to contribute, CIM is willing to come to the table and work with that borrower.
UMTB’s Ryan Park said his team worked to convert adjustable-rate loans originated in 2021 and 2022 to fixed-rate through recapitalizations and other modifications. Borrowers with newer loans seem to be anticipating a longer horizon until things improve.
“Clients that signed up to deals in the beginning of the year or first quarter, they were telling me, ‘Hey, I think we’re planning for three years for us to ride this out,’ but as we get to closing time, they say, ‘Actually, can we convert that five-year term? Actually, can we do a longer term?’”
Lenders seem to be feeling similarly cautious. In a show-of-hands poll of six panelists, most thought the Federal Reserve wouldn’t make any move to slash interest rates this year or early next.
With banks generally pulling back from lending in CRE, more private lenders have stepped up to fill in the gaps, panelists said. They drew attention to preferred equity, an area of specialty for several panelists, as a growth subset and one that can help with loan restructuring as refinancing opportunities remain thin.
Tryperion Holdings Managing Director Greg Rollman said almost all the deals he is seeing are presented as distressed, with a seller who needs to sell. But he questioned whether that was just a clever marketing technique.
“If I were a broker and I was selling a property, I would probably just put that in there because that’s going to help my buyer and investment committee,” Rollman said.
Read more: https://www.bisnow.com/los-angeles/news/capital-markets/los-angeles-deal-making-finance-124225
