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CREFC Chair: Market is Still Seeing Signs of Distress
The CRE Finance Council (CREFC) hosted its 14th annual High Yield, Distressed Assets & Servicing (HYDRA) Conference in New York City on March 31. In his opening remarks, Eric Thompson, senior managing director and global head of structured finance ratings at Kroll Bond Rating Agency and CREFC chair, pointed out that not only was the last HYDRA conference held two years ago shortly before pandemic lockdowns began, but its return was marked by record attendance.
Thompson cautioned that the marketplace is still seeing signs of distress as cash flows for certain property types have yet to stabilize and we are in the midst of a rising interest rate environment. Distress was the focus of the day’s second panel, with panelists representing special servicers, a mezzanine debt holder, and a hotel investor and receiver.
Topics included creative solutions for turning around challenged loans, enforcement of remedies in the capital stack, and distressed asset purchase and sale opportunities. Solutions highlighted for distressed performing loans included strategies that have been consistently utilized throughout the pandemic. These include loan extensions and modifications in exchange for filling of reserve buckets and/or contributing additional capital to a deal.
For borrowers with limited access to capital, panelists said bringing in preferred equity partners would be an effective solution for keeping loans current and performing. However, KBRA reported that among the panelists, it was noted that proper due diligence on the PE partner must be completed to ensure they have the experience to operate the property, should it gain control rights
- ◦Financing
