CRED iQ®

The Question for Multifamily - Broken Assets or Broken Capital Stacks?   Trends:   · CMBS Apartment Distress Rates up 185% in last 6 Months according to CRED iQ® o  Multifamily Distress Rate has now reached 7.4%, up from 2.6% six months ago. · Typical asking rent nationwide is now $2,054, or 4.1% higher than one year ago, continuing a steady slowdown in the annual growth rate since hitting a record-high 16.2%, according to the @Zillow Observed Rent Index. · Delivery of 440,000 new units is expected in 2024 and with more than 900,000 currently under construction, the overall multifamily vacancy rate is expected to rise and rent growth to decelerate according to CBRE. ·       Adam David Lynd CPM® of LYND Company, a nationwide owner and developer of multi-family property, told @Anthony Russo of GlobeSt.com that, o "The problem is values are down and now rents are starting to decline to go flat …. So they're not keeping pace with the expenses. And then you have interest rates on top of it. So it's a perfect storm.” Takeaways: · Multifamily rent has slowed, and with inflation driving up expenses, NOI is shrinking. · Apartment owners have shared with us that their current focus is trying to reign in operating expenses as best they can, given slowing rent growth. · Decreasing NOI has reduced the amount of a loan a property can sustain, resulting in a decrease in prices "bid" as well as the actual valuation. · Multifamily rent growth was at unprecedented levels and were underwritten based on those trends, however, sensitivity analysis did not (and could not have) considered the simultaneous convergence of o  Slowing rental growth o  Inflation triggered expense growth o  Spiking interest rates o  Oversupply · While multifamily properties may be performing well given current market conditions, the debt load being carried may be unsustainable in many instances. · Broken asset or broken capital stack? · Multifamily will remain a stable investment, but just at a new value and with a new debt structure – which will create value add opportunities.   In navigating through these challenges, it’s important to understand all the complexities of the current capital markets, assets, and loans. EOS Real Estate has the multi-disciplinary expertise to guide you through to resolution.   We can help. #CRE #realestatefinance #assetmanagement #distresseddebt #maturitywall #multifamily MSCI Inc. Jim Costello Commercial Observer Cathy Cunningham CRE Finance Council Lisa Pendergast Trepp, Inc. #CRE #realestatefinance #assetmanagement #distresseddebt #apartmentbuildings #crevaluation

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The CRE precipice and the personal guarantee. 🍀 Investors could be on the precipice “of one of the most significant real estate distressed investment cycles of the last 40 years.” John Brady global head of real estate Oaktree Capital Management, L.P. Yahoo Finance / Bloomberg 🍀 “Trillions of dollars of problematic commercial real estate will have to be worked out over the next two to three years, creating an “amazing amount of opportunity” for investors, according to Marathon Asset Management Chief Executive Officer Bruce Richards.” 👉👉 https://lnkd.in/gV5K9cxz 🍀 But for every investor who makes money buying distressed CRE loans or foreclosed properties, there’s usually a borrower and/or a lender losing money. Which brings us to the dreaded borrower personal guarantee or PG. Banks will need to start collecting on loan deficiencies as loan extensions increasingly turn into foreclosures. And unlike CMBS and CLO loans, many banks require borrowers to provide personal guarantees on CRE loans, particularly on higher leverage and construction loans. But, as every banker knows, the personal guarantee is the weapon of ‘borrower relationship destruction’ that lenders are loathe to pursue - and by all accounts have largely avoided so far. But that may be changing. For banks in particular, as regulators get tougher on iffy bank balace sheets as nonperforming CRE loans continue to pile up, collecting on borrower PG’s is an approaching reality in order to limit capital infusions or worse, be forced by regulators to merge or be acquired by other stronger banks. But bank profits are driven by loan origination which is in-turn driven by relationships with borrowers. After nurturing and building relationships with CRE borrowers for years, a banker’s worst nightmare is to then turn on that relationship and sue them personally for the amount of the shortfall in the loan. And this will spawn a whole lot of borrower / lender litigation. Not a fun time to be a banker. And not a fun time to be a borrower who’s personally guaranteed CRE loans. 🍀 Chart by CRED iQ® 🍀🍀🍀