Given the amount of maturing debt in CRE (last stat I heard was $1.5T between now and end of 2025), even after assuming some extend and pretend and handing back of keys, there's a tremendous amount of debt that needs to be refinanced or paid off in the coming years.
That said, how much can/will be absorbed by traditional banks (I keep hearing that while still the cheapest source of debt financing, banks will be tight on proceeds, not lending as much in pure dollar volume, and essentially won't be able to provide any sort of meaningful solution to the wave of refis). On the flip side, everyone and their uncle is getting into private credit, so no shortage of those vehicles if you want to pay up.
If banks are typically 250-300 over, and private credit is 650-700 over (based on what I have seen recently), are there lenders in between the two on pricing, to fill in some of that gap? i.e. 400-500 over? Seems like there would be a demand for some for a hybrid between banks and private debt.
I think that there is a little bit of misunderstanding here.
You are correct that for ground-up there are largely 2 debt sources (yes, Life Cos and HUD fund construction as well), Banks and Debt Funds are the main sources of funding. There are some debt funds that are in the 450-550 spread range but you are correct in saying that many are pricier.
For refinances, spreads are typically in the 150-250 range with many different funding sources including Banks, Credit Unions, Life Insurance Companies and CMBS.
The concerns with refinances right now are the relatively high loan balances outstanding whereby the properties aren't meeting the new DSCR thresholds based on the higher interest rates.
I didn't mean to imply banks and debt funds were the only sources. However, isn't the general sentiment in the industry that banks (maybe this includes credit unions) will provide much less of the overall funding dollars than they had in previous years?
CMBS financing is not for everyone, typically the asset needs to have certain characteristics for CMBS debt to make the best sense. LifeCo, I have generally viewed as lower leverage, again targeting safer core type assets.
Correct. Many banks are out of the market and the ones that are in aren't pushing leverage as much as they have in previous years or are lending at slightly higher spreads (closer to 200 as opposed to 160-180 in previous years). Simply put, Debt Yields (due to DSCR) gave increased much more significantly than cap rates which means lower leverage across the board.
For most maturing multifamily construction rent growth offsets the rate increases and sponsors are basically ok. As long as you’re over a 1.0x you won’t lose the property.
The real pain is in office and “value add” multi family. There is no solution there other than the equity going to zero and lenders taking losses.
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