CRE Debt Maturities and Investor Preparation
CRE debt maturities: How much trouble are we really in?
A 4-part deep dive into debt maturities and their impact on CRE
Note: This is the fourth in a series of Weekender articles about upcoming commercial real estate debt maturities and their industry impacts. “Debt Maturity: What’s Actually in Trouble,” “Anticipating the Debt Maturity Onslaught” and “Solutions to Debt Maturities: What Are They?” are available to read.
Anticipated commercial real estate debt maturities generate a bad-news, good-news situation. The bad news is for those holding the maturing debt. This could require added equity for a refinance or even an asset sale.
On the other hand, experts tell Connect CRE that the current scenario could provide an interesting opportunity for prepared, well-capitalized investors.
“These upcoming CRE debt maturities can provide investors with opportunities at discounted prices, given that CRE owners will need to sell their properties as soon as possible if they are unable to restructure their debt,” said Juan Ramirez, Tauro Capital Advisors’ Senior Processor. “This creates an opportunity for investors to swoop in and buy these properties at a low price.”
Outside of asset sales, notes from distressed lenders could also provide a buy option for well-prepared investors. “Many banks will take a loss on distressed loans to get their balance sheets clean, particularly as scrutiny of bank balance sheets is skyrocketing in the wake of bank failures,” said Benjamin Kadish, President, Maverick Capital Mortgage. Added iBorrow CEO Brian Good: “Distressed debt investors will likely have a field day as banks shed bad loans.”
There is also another option, according to David Kidder. “The other choice will be to provide private credit as gap capital, or restructure the capital stack in its entirety,” said Kidder, director, business and corporate development with Newmark Capital. “This can be especially appealing, given the high current cash flow and lower exposure to valuation concerns.”
But caveats come with the potential opportunities. One of these is timing. “A changing market provides investment opportunity,” acknowledged CapRock Partners President and Co-Founder Jon Pharris, “but the opportunity set can sometimes be difficult to decipher, especially at the beginning of the turmoil.”
Along with this is limited capital availability. “Nearly every capital provider has pulled back and become more conservative in the wake of SVB and Signature Bank failures,” Kadish said.
And as with any investment, knowing what you’re getting into is important. “Investors should always perform due diligence when evaluating these types of opportunities to assess the risks and potential benefits,” Ramirez said.
As such, the experts agreed that all-cash investors will likely be better prepared for potential prospects resulting from commercial real estate debt maturities. “There will be tremendous opportunities over the next 24 months,” commented Scott Morse, managing director, Citadel Partners. “Stay informed and vigilant about the evolving volatility in the market, keep your cash war chest full and be patient.”