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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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Real estate may not be America’s — or the federal government’s — sweetheart for long.

President Joseph Biden just released a proposed 2024 budget in which he pitched eliminating tax breaks for real estate and private equity firms as part of his efforts to cut the country’s budget deficits by nearly $3 trillion over the next decade.

The White House is aiming to recover about $19 billion by closing the loophole known as the “like-kind exchange,” or 1031 exchange. The loophole lets real estate firms put off paying capital gains taxes from income earned on property sales as long as they make an investment in a similar property elsewhere.

The Biden administration said the real estate industry was the only one getting a “sweetheart deal” from the federal government and equated the tax break to an interest-free loan.

Other items in the budget, such as a 25 percent minimum income tax on the top 0.01 percent of earners, also known as a billionaire’s tax, would also have implications for top real estate executives. Biden also called on Congress to raise the income tax rate from 37 percent to 39.6 percent for people making more than $400,000 and couples pulling in more than $450,000 per year.

Corporations in general could also have an income tax rate of 28 percent, an increase from the 21 percent they currently pay, but still a big reduction from the 35 percent that was expected from corporations before 2017.

“We found that in 2020 when I took office, that 55 major corporations, Fortune 500 companies, paid zero in federal income tax on $40 billion in profit,” Biden said during his remarks. “When I got elected, there were roughly 650 billionaires in America. Now there’s over 1,000. You know how much tax they pay? Three percent. … No billionaire should be paying less than a schoolteacher or a firefighter.”

Biden’s budget instead prioritizes making housing more affordable through programs such as the Neighborhood Homes Tax Credit, which his administration wants to fund with $16 billion over 10 years, and expanding the Low-Income Housing Tax Credit with a $28 billion infusion of funds.

The budget proposal also would set aside $10 billion for planning and housing capital grants for state and local governments to make reforms and streamline building new affordable housing projects on their own. Overall, the budget puts $175 billion toward programs that could facilitate the development and rehabilitation of affordable housing.

Transit in the tri-state region is also a big investment in Biden’s budget. Biden promised about $700 million for construction of the Hudson Tunnel Project — which could stabilize service in the long term on the Northeast Corridor — and $496 million for phase two of the Second Avenue Subway, an opportunity for transit-oriented development


Source: Commercial Observer