063. Looming Debt Crisis in Multifamily Real Estate
Looming Debt Crisis in Multifamily Real Estate
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Episode Transcript:
Today we dive deep into the world of multifamily real estate. It's been the darling of investors for some time, but today we're discussing a shift in the winds.
There's an $8 billion tidal wave of multifamily mortgage-backed securities maturing in October and November. It's stirring ripples of concern. This looming debt cliff could trigger defaults in the multifamily sector, which has enjoyed improving fundamentals and strong renter demand.
Some might see this distress as an investor's opportunity, but experts have a different take. Lenders are inclined to work with borrowers rather than add troubled assets to their balance sheets.
Cortney Newmans, Head of CRE at Lima One Capital, put it bluntly, "Nobody wants to take back a property with 60% vacancy." Lenders focus on crafting business plans to support borrowers.
Why this leniency? The banking industry pulled back from new loans, especially in real estate. Taylor Pike, SVP at Peachtree Group, noted this and that banks are extending deadlines for borrowers.
Tony Trahan, director at KE Andrews, chimed in, noting a record number of workouts lately, with banks more willing to collaborate.
However, not everyone might emerge unscathed. Borrowers with loans in 2021-22 with ambitious projections could find themselves in trouble. Foreclosure might be the only option in these "choppy times."
But here's the silver lining. Experts anticipate distress, which could spell buying opportunities. Rising interest rates play a role. The Federal Reserve's drive to combat inflation raised borrowing costs, impacting demand and property values.
Investors enjoyed a decade of cheap money, striking deals with high leverage strategies. But those days are fading. Max Sharkansky, Managing Partner at Trion Properties, revealed that loan interest rates surged, impacting deal pricing.
Interest rates also affect developers. While there's booming housing demand, developers grapple with rising project costs.
Patrick Chesser, Senior Managing Director at Mill Creek Residential, summed it up, "Today, you'll have to price it right, plan it right, and find an accommodating land seller."
Insights from the real estate world, where the multifamily market faces uncertain waters, driven by maturing debt and rising interest rates.
This is Tyler Cauble, Signing off