Commercial loan credit crunch and illiquidity?
commercial loans started to slow down big time in 2022 with the rise of rates. Deals started to make less since to buy, finance and this lead to a major slowdown in the commercial real estate market. CMBS financing down 80%+ and commercial loan financing is down 70% from the peek when rates were low and the appetite for making commercial loans was very healthy. Bridge debt/construction debt got hit hard because rates went from the 3's to 9's quickly and deals started to make no sense. If you are building a project and, on your way, you are pushing forward and trying to get to the finish line. If you have a deal that had not been financed at this time, your loan might have got canceled from the bank or that 50 to 65% LTC and 9 to 10% rate made no sense to proceed with the project.
This was all prior to the SVB bank drama, commercial lending was already feeling the pain, and little did anyone know things were going to get worse. Now here comes the failure of SVB/Signature Bank. All the focus is on these small reginal banks who make up 70% of commercial lending and now these banks are under the microscope. So naturally, NOT all but many banks are in the process of looking at balance sheets, liquidity and making sure they are able to survive during these times. Slow down lending and getting more liquidity seems to be the focus for many of them.
The panic is there is $1.5 Trillion worth of commercial loans that need to be refinanced by the end of 2024. Is the debt market going to be there? Will the banks be able to step up? Will the government have to come in and save the day? How many of these big/small real estate deals that were purchased with bridge debt or creative financing be able to refinance? What is going to happen? This is the trillion-dollar question?
Not all banks have STOPPED lending, there will be small banks that are in a great position to lend and did not overload their balance sheet with loans when rates low. Investors will be forced to look at alternative financing, expensive bridge debt to get through this period, raising money from investors to save a deal, working out a loan modification from current lender.
WHO CAN HELP? Experienced commercial loan brokers will be a HUGE savior for many investors, they will have the resources, lenders, private money sources and help investors find a way to finance deals in todays market. If you are an investor and do not have an experienced commercial loan broker, find one fast because you will need them in today's market.