According to the Mortgage Bankers Association (MBA), 16% of the $4.5 trillion in commercial real estate and multifamily loans are maturing this year across property types and capital sources. Further, the MBA notes that out of the $750 billion in outstanding office loans, it expects $190 billion to be maturing this year, with $117 billion maturing in 2024.
Given the volume of loans coming due, and with uncertainty in the market and the diversity of today’s lending community, there is no one-size-fits-all answer to today’s financing challenges. However, there are basic best practices that should always be employed.
Most real estate lenders interact with borrowers/sponsors via asset managers, meaning that negotiations are not between stakeholders. Asset managers are managing numerous loans at one time (portfolios) and therefore lean into various professionals to assist in the management of the portfolio, similar to the use of a property manager, a tax appeal professional, or an insurance broker. Immediate actions borrowers should take include:
- Retaining professionals (financial advisors, attorneys, etc.) experienced in real estate workouts
- Providing the lender/asset manager with a prompt response to all financial and informational requests (regardless of whether it has been previously provided)
- Coordinating a site inspection and meeting with the lender to walk them through the collateral and the borrower’s proposed business plan
- Submitting a proposal outlining the first steps for the resolution or restructure of the distressed loan
Real estate cycle downturns create opportunities once the bid-ask spread compresses. Investors will find opportunities through non-performing loans (notes), receiver sales, bankruptcy sales, and equity injections for non-stabilized assets.
However, we expect there will be significant competition for acquisition of, or investment in, high-demand asset classes, such as multifamily and industrial/warehouse, and low opportunity for investment in less desirable asset classes such as office, lodging, or malls and unanchored retail. Investors should be wary of par transactions and lack of consideration for an equity injection/recap, and should also understand the seller’s prior actions, which may travel with the paper or investment.
Pivot Points: Updates from CohnReznick's Restructuring and Dispute Resolution team