Late-Cycle Financing: Navigating Interest Rates and Inflation in an Era of Uncertainty

By David Cohen

While the late stages of a cycle can be a challenging time to invest and secure capital, mature cycles have often been characterized by a late surge in equity and credit markets. At the same time, these market dynamics can tend to generate a large amount of volatility, making it difficult to manage overall risk.

During Connect Westside Los Angeles on Dec. 4, a panel discussion was held on late-cycle financing. The line-up of speakers included George Smith Partners’ Gary M. Tenzer, Madison Realty Capital’s Bradley Ross, Greenberg Glusker’s Craig Coan, Money360’s Ken Gaitan, CIM Group’s Nicholas Bryer.

George Smith Partners’ Tenzer, who moderated the discussion, addressed the potential of an economic slowdown, noting that should one occur, he doesn’t expect it will cause the “same bubble to burst” as what happened in 2008. “It may be choppy but there’s not going to be a drop in values,” predicted Tenzer.

Takeaways from the panel included the speakers’ outlooks for 2020 and beyond:

Ross: I would say that we are staying the course, which has been pretty aggressive over the last several years at least. Madison is 15 years old, and we’ve never had a satellite office before. Our first satellite office opened in L.A a few years ago. Looking forward, I think there’s a lot of unknowns and anything can happen, but as it currently sits today, and that changes by the hour, we feel very bullish.

Gaitan: As a non-bank lender, we have a lot of flexibility. We can move with the market and we’re always studying new products. When we launched almost four years ago we were a market disruptor. This is a fun place for me to be right now in my career as it relates to the cycle and whatever direction that’s going to be. That’s how we can evolve as a company to solve the problems that are in the market.

Coan: From where I sit, I’m getting calls for deals. People just want to put their capital out. But, I don’t see it like 2006 where people felt they had to put their capital out. I think that it all depends on your situation. There are people out there who see value and can make a low cap rate deal work.

Panelists also noted that today is key for borrowers to know and understand the source of capital, since that often translates to how it can be deployed and the expectations of the lender.

Gaitan: There’s more discipline today, yes. But there’s also a lot of rules that get in the way of how you want a deal done and how your client wants your deal done. It’s important to understand where the capital is coming from and where are they going to put that loan because it could very much impact your structuring and terms.

For comments, questions or concerns, please contact David Cohen