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Lending activity from banks on commercial real estate has slowed in the wake of higher interest rates, an expected recession, questions about specific sectors and the collapse of three regional banks this spring.

At the same time, commercial real estate investors are applying extra scrutiny to lenders amid recent banking turmoil, especially as some banks that have failed in recent weeks lent prominently to commercial real estate.

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.

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.


Source:  SFBJ

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‘Near record’ amounts of capital are sitting idly on the sidelines amid economic uncertainty, and how (and how quickly) it’s deployed this year will be “major factors” in overall sales volume, according to new research from Colliers.

In a new report, the firm says that value-add, opportunistic, and debt capital look to be the most active, with debt plays yielding “equity-like returns.”

“Liquidity can be found, but from different sources,” the report notes.

Investors are turning to defensive strategies, with multifamily and industrial garnering the most activity as “safe harbors” due to strong fundamentals and durable cash flows. Among alternative assets in Colliers’ survey, life science, data centers, and student housing ranked first, second, and third  due to “demographically driven upside and strong fundamentals,” which analysts predict will continue to draw investor interest.

Grocery-anchored retail is also expected to remain resilient while luxury hotels have posted “incredible” fundamentals.

And as for office, “trophy properties are vastly outperforming all others, demonstrating the need for upgrading and occupiers’ focus on ESG-compliant assets,” the report notes. “This need for new product will be difficult to meet, with capital investment preferring to upgrade existing assets. Conversions, repositioning, and recapitalizations will all be common themes throughout the year as the office sector evolves. Distress will emerge.”


Source:  GlobeSt.