Top Takeaways: CRE Finance Council Annual Conference
The CRE Finance Council held its annual June conference on June 12th-13th at the Marriott Marquis in New York. The seminal conference is heavily attended by lenders and capital market participants in the securitized lending markets (Agency, CMBS, CRE CLO). The mood and tone of the conference were subdued given the significant declines in securitized lending volume, rate uncertainty, and other tensions.
- Securitized lenders don’t like volatility and market uncertainty. Participants will stay on the sidelines until more certainty returns to the markets. Panelists were mixed but generally felt the market could start to move forward with clarity on monetary policy. Clarity and understanding of go-forward rates will allow equity to be repriced and establish property value.
- Non-performing loans are increasing, with 6% of conduit loans now in special servicing. During the great financial crisis in 2008/2009, the peak reached 13%, but not until May 2012, so there is a significant lag in loan performance. Expect the period of deleveraging to continue for the next 18-24 months.
- Private/alternative lenders and CMBS originators are bullish about their ability to backfill the void left by regional banks that have pulled back from lending. Most participants felt the biggest beneficiaries would be private/debt fund lenders. Still, CMBS will remain an important liquidity option for properties with stable cashflows looking for 5- or 10-year fixed rate terms.
- The office market was the most talked about subject in nearly every panel. The market is painting this product with a broad brush, and borrowers with upcoming maturities will face challenging conditions.
- Participants remain very positive on Industrial and Retail. Industrial continues to benefit from strong secular demand drivers. Retail (non-mall) has performed remarkably well, and performance can be benchmarked to how the assets performed during Covid.
- Lenders still like multifamily, but there will be a rational approach to underwriting. New construction or value add deals sourced in 2021/2022 might have problems as they were priced to perfection when rates were low—these deals likely will be cash-in refinances. Several alternative lenders have raised mezz/preferred equity funds to address this specific need. Additionally, certain markets facing an oversupply might find more challenges than others that remain supply constrained.
- Most market participants see agency volume dropping significantly from 2022 levels. The GSE regulator changed affordability targets from 500k units to a percentage of production. This will allow Fannie and Freddie to take their foot off the gas but continue to provide rational liquidity to multifamily while maintaining their mission-driven mandates.
- Specialty sectors such as self-storage and data centers continue to remain attractive.
- Loan sales continue to be lower than expected outside the FDIC loan auction of SVB and Signature Bank. There have been selective quiet sales, but market pros see the bid/ask spread as too high. When we see more distress and loans get forced to mark-to-mark, expect this market to open up.