How private equity, real estate investors are navigating rocky financing environment
Even for established groups with longstanding relationships with banks, fewer quotes are being given for deals that a year ago may have seen as many as 10 or more quotes from lenders, industry sources say.
“We’re having to be very thoughtful about the lenders we’re going to and make sure we have lenders that will actually show up at closing,” said Greg Friedman, CEO at Peachtree Hotel Group LLC, adding he’s seen lenders pass two or three weeks before closing on an acquisition they had previously agreed to lend to.
Buying and selling real estate has meant adjusting pricing expectations and being willing to accept more conservative debt terms.
Although regional and community banks have been in the spotlight with recent bank failures, commercial real estate groups say they’re still working with those lenders — but in a smaller way than previously.
Commercial real estate executives say there’s a new awareness within the industry about regional and community banks after the collapse of Silicon Valley Bank, Signature Bank and First Republic Bank. Most real estate investors have, since those bank failures, gone through and assessed their deposit relationships.
Nearly $1.5 trillion in commercial real estate debt is maturing by the end of 2025, Morgan Stanley analysts recently found. But, Morgan Stanley also found, banks with less than $250 billion in assets only account for 29.9% of commercial real estate debt, as opposed to up to 80%, as others have reported.
In the wake of slower lending from banks, other capital sources have stepped in to fill gaps, including life insurance companies.
For some capital sources, there’s potential opportunity to invest in projects or deals that, in more typical market conditions, would be more successful but are facing issues because of the recent surge in interest rates and cost of debt. Various firms have received a number of calls from groups lending on half-built construction projects seeking an equity infusion.
Friedman said Peachtree’s lending platform has the ability to help restructure debt on a given deal, to give the sponsor more time to get through the current credit market dislocation.
Unsurprisingly, for most lenders or equity sources, most are choosing deals, markets and sectors expected to be safest during a downturn.