Capital Markets Update

Welcome to our monthly Capital Markets Update, where we provide valuable insights and trends in the multifamily lending world to help you navigate the current financial landscape. In this edition, we will discuss the key developments and offer advice on various aspects affecting commercial banking.

1. Banking Landscape Shifts Post Failures: Recent bank failures have led to a more cautious approach to lending, especially for commercial real estate borrowers. This turbulence and the reaction of regional banks to the failures and runs on deposits have complicated capital raising efforts for most sponsorship groups. Larger banks have a greater capacity to lend to commercial real estate borrowers compared to their smaller counterparts, with the median exposure to commercial real estate for large banks being around 10% of loans compared to 29% for regional banks. As a compensating mechanism, most regional banks now require deposits in the range of 10% or more of the loan amount when faced with new loan requests from new clients. This requirement is necessary to maintain a balanced "Loan to Deposit ratio" in compliance with regulatory standards.

2. Refinancing Challenges and Solutions: Around 15%-30% of commercial real estate loans from rated U.S. banks are due for refinancing this year. This could lead to an increase in troubled loans. However, banks may choose to extend the loan terms or restructure the debt instead of foreclosing on commercial real estate properties if it offers better long-term prospects.

3. CRE Loan Delinquencies and Future Outlook: Despite rising interest rates making loan repayment more expensive, delinquencies and charge-offs for owner-occupied commercial real estate loans have remained low. However, we anticipate an increase in defaults as the rate increases continue to negatively impact NOI and DSCRs. Moreover, if interest rates continue to climb, the value of commercial real estate properties will continue to decline, increasing the risk of defaults. S&P Global anticipates more substantial write-offs for commercial real estate in the next two years.

4. Challenges faced by banks with floating-rate loans: These loans are more common among borrowers implementing a value-add strategy, which was prevalent during the last run-up in prices. As transaction volumes have decreased, these borrowers are finding it difficult to sell or recapitalize assets since the values in many markets are down from 15-30% from the peak. There are few good options for these borrowers, apart from capital calls, to try and navigate through this challenging environment.

5. Investment Opportunities Amid Market Turbulence: Despite the current challenges, there are still various investment vehicles available in the market to complete deals:

• Private Money Investment: Private money loans offer short-term flexibility and numerous inherent advantages, with interest rates ranging from 11% to 14%.

• Debt Funds & Bridge Lenders: These funds are increasingly popular, aiming to reduce risk exposure while ensuring financial growth, with interest rates ranging from 9.00% to 11.00%.

• CMBS Investment: Industry experts are optimistic about a potential resurgence in the CMBS loan market as interest rates stabilize, with interest rates ranging from 6.00% to 7.00%.

• Commercial Banks: Traditional banks are making strategic changes to their lending practices to adapt to unpredictable market conditions, with interest rates ranging from 6.00% to 9.00%.

• Credit Unions: Credit unions offer competitive rates ranging from 6.00% to 8.00%, but their extensive underwriting process may result in potential delays.

• Fannie & Freddie: Fannie Mae and Freddie Mac transactions remain strong, providing attractive options for residential and multifamily properties, with interest rates ranging from 5.50% to 6.50%.

• FHA: Commercial real estate borrowers can seamlessly transition from construction and bridge loans due to the trend in FHA loan interest rates, with rates ranging from 5.30% to 5.60%.

• Life Company: Life companies continue to actively lend across all asset classes, with interest rates ranging from 6.00% to 7.00%.

• Mezz/JV/Equity: Mezzanine and Equity financing offer opportunities for larger projects with as little as a 5% down payment for qualified investors.

By staying informed and considering these investment opportunities, you can make more informed decisions in the ever-evolving capital markets landscape.

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A Loan Broker with a Commercial Banker's Background: Priceless

Vincent SantaLucia, the head of Capital Markets at Offerd, comes with an impressive background of over 18 years of experience as a commercial banker. Before joining Offerd, he successfully navigated the intricate world of real estate lending, accruing invaluable knowledge and expertise that promises to benefit your organization in these uncertain times.

Vincent's track record involves managing nearly a billion dollars in loan originations. His proficiency in securing and closing these loans, even in difficult periods, makes him an invaluable partner for any organization. Collaborating with Vincent and his team ensures an unparalleled level of efficiency, effectiveness, and expertise that goes beyond the offerings of traditional loan brokers, regardless of the transaction size.

As a lender, Vincent placed among the top 3% of all Commercial Lenders - an accolade that underscores his unfaltering commitment to delivering excellent service and results for his clients. Vincent strives to not merely meet but exceed client expectations in all aspects. His strong connections within the commercial lending community and unique insights into the banker's perspective of sizing up, underwriting a deal, and assessing a sponsor can provide a distinctive competitive edge.

Each client's needs are unique, and Vincent understands this. He crafts a personalized strategy designed to address your distinctive requirements, acknowledging that each approach should be customized to align with specific needs.