Mark Halloran, Senior Vice President with GRS Group, an NV5 Company
The Commercial Real Estate Finance Council (CREFC) annual conference took place last month in midtown New York City and saw more than 1,300 attendees. The conference offers attendees the opportunity to gain insight into the latest market updates, best practices and hear from senior members of the industry offering decades worth of experience through multiple business cycles.
During the day, not surprisingly, liquidity constraints and interest rate spikes were the main topics of discussion on and off the stage. At the evening receptions, the commercial real estate (CRE) professionals discussed preparing themselves for this dip in the cycle and shared their optimism that the CRE industry would be back on track during Q3 and firing on cylinders by year-end and into Q4.
As is often the case, there are various opinions about the CRE, and not all markets and segments perform the same under stress. While there was general concern over office vacancies in major metropolitan statistical areas, there was also the shared sentiment that best-in-class office and residential rents are generally increasing as demand increases. For B and C properties, the bid ask gap may still be too wide to see a string of office to residential conversions in gateway cities.
Despite the challenges, there are reasons to not hit the panic button. Several of the special servicers in attendance were optimistic that a high percentage of loans due in 2023 would, in fact, pay off. They noted that there is considerable money on the sidelines in this cycle, and modifications and loan extensions will be a tool used by lenders to help retain the value of their CRE collateral. A final bright spot would be alternative lenders. While sometimes considered a pariah by “regulated banks,” in the right circumstances, top players in this segment can provide debt and equity options. Lenders may have to don their asset management hats more than they would like to for the near term, but rates will level and eventually decrease.