Last week, apartment developer Patrick Carroll launched a venture to provide relief funds to Sunbelt apartment owners. The platform will see him invest $250 million in equity in troubled borrowers.
Carol is not alone. With rising interest rates and record debt putting more property owners at risk, more and more players are preparing to take advantage of distressed assets.
Commercial lending giant Greystone announced Monday that it has formed a joint venture with Inlet Real Estate Capital to provide short-term financing to struggling owners. sternlicht Raised over $10 billion last year to fund distressed real estate investments, he said in a recent article. Bloomberg TV interview He sees an “incredible opportunity” in companies with “broken balance sheets, but not their assets.”
“Many loans will be sold,” Sternlicht predicted.
Interest rates have fallen widely over the past 40 years, allowing property owners to refinance at lower interest rates than their previous loans. And since the 2008 economic crisis, funds have been readily available in most cases.
But multiple rate hikes by the Federal Reserve this year have pushed property owners into new dangerous territory. Borrowers who have access to new loans will be forced to take out loans at higher interest rates, potentially driving their assets into the red.
According to Carroll, this leaves cash-strapped borrowers with two options. Find bailout funds or face foreclosure.
“The only solution is to inject new capital and [property owners] I will live to fight another day,” Carroll said.
In addition to providing relief funding, Carroll is considering taking a stake in a publicly traded multifamily REIT to take it private. He didn’t specify which portfolios he was considering, but he explained that it’s “a way to buy a large portfolio at a discounted price.”
Greystone and Inlets plan to offer both debt and equity to struggling property owners. Once real estate stabilizes, Ventures said her partners could offer long-term fixed-rate loans, including commercial mortgage-backed securities and agency finance.Joint Venture Targets $5M to $50M Transactions Across the U.S.
Ryan Jantzen, head of Inlet Capital, who was previously co-head of originations at Ladder Capital, said in a statement that he expects a record number of loan maturities in the next year “to invest in CRE Homes and lenders may find themselves in a difficult position to refinance.”
Alarm bells are nothing new.many people predicted large foreclosure Distress sales at the start of the pandemic.
Daniel Lebensohn, head of investment firm BH3, told The Wall Street Journal in 2020 that the impending crisis presented a rare opportunity for companies like him.
“There are people like us who have dry powder and will recognize this as one of the greatest buying opportunities of the century,” he said.
But the expected wave of distress did not come. The Federal Reserve cut interest rates and government lending programs kept businesses alive.
Now mathematics has changed.
Many big banks have already refrained from lending. Issuance of CMBS plummetedaccording to industry sources and Trepp, a data service that tracks securitized mortgages.
“It’s just the perfect storm,” Carroll said. “People who bought 2 caps, 3 caps at a high price [rates] Now they owe more than they own. “