Hey, look, it is me with a big bag of cash and well, better hair. If you do not have time to read the entire article, allow me to extract and apply the relevant.
"The sun peeked out from the clouds in mid-December for commercial real estate lending after a mostly gloomy year."
Mostly? It sucked! What changed?
"The commercial real estate market got a boost when the central bank indicated Dec. 13 that its hawkish strategy fighting inflation was likely done, and that multiple rate cuts were on the table for 2024."
How did we get here again?
"The Fed brought short-term interest rates to their highest level in 22 years at between 5.25% and 5.5%. It’s now forecasting to close 2024 with rates at 4.6% followed by 3.6% in late 2025 and 2.9% by the end of 2026."
Fed dictated rates are important, but most CRE debt is priced over treasuries.
"Some signs of improving lending conditions were already showing" when 10-year U.S. Treasury yields fell from 4.37% in November to 3.91% on Dec. 15.
"Barclays, said last month marked the lender’s busiest December for conduit loans in four years, with much of the volume driven by borrowers who wanted to capitalize on an improved interest rate environment for deals they had originally looked to bring to market earlier in the middle of 2023."
The wait and see attitude switched to LET'S GO!
"The CMBS market is also getting a boost from gridlock that is now getting pushed through as borrowers are opting for conduit loans to create needed liquidity for projects."
Existing equity in Project A is pulled-out via refinance to fund Project B. Yes, robbing Peter to pay Paul? Should we be concerned?
"A wild card in 2024 will be whether lending starts to flow again from banks, big and small, which were largely on the sidelines for much of 2023."
Did a year off help banks?
"Banks head into 2024 with heavy loads of CRE stress on their books, showing a 10% to 20% default rate on loans. Those defaults could equate to $80 billion to $160 billion in losses.
Who will benefit from banks remaining on the sidelines?
"That will create more opportunities for alternative lenders."
For non-bank lenders, "the first half of 2024 could be the beginning of what I (Haan) would describe as maybe one of the best lending vintages of my career, and I don’t think that that’s going to be short lived.”
"Shadowing any optimism for lending volume in 2024 is a realization that the increase will likely be a slow one. There have been a number of owners sitting on the sidelines waiting for the dust to settle and for rates to be in a stabilized range.”
However, a moment of stability offers "the ability to do some real long-term planning about whether they want to be in or out of assets and whether they want to sell certain parts of their portfolio and move into new assets.”
Improvement, Up, Increase, and Rebound are all good words to say Let's Do More in 24!
Kyle Nagy, President | knagy@commcap.com | 702.792.7553
Kyle Nagy is a founder and Director of CommCap Advisors. Kyle started his commercial real estate career in 1999 as the Real Estate Analyst for the Las Vegas office of GMAC Commercial Mortgage, an international real estate finance company. Prior to leaving and forming CommCap, Kyle was instrumental in the growth and success of the Las Vegas GMAC office and was one of the youngest Vice Presidents within the company. During his finance career, Kyle has successfully originated, underwritten, and closed over $900 million in loans with Life insurance Company, Wall Street Conduit, Bank and Agency Lenders.