Ballard Spahr was thrilled to host a Commercial Real Estate Finance Council after-work seminar in our offices in sunny Los Angeles this past Thursday evening. CREFC is the premier trade association in the United States for the commercial real estate finance industry, and Ballard Spahr was pleased to continue our longstanding relationship with CREFC, comprising a range of collaborations, including as a regular co-host and sponsor of CREFC events.
It was a packed house in our conference rooms. It is clear that our industry is eager to get together and discuss market challenges we all face, and how we might take advantage of opportunities, in the current real estate and finance markets. This seminar came on the heels of the CREFC Miami conference in January, which drew record attendance of over 2,100, and brought current many of the themes discussed in Miami.
The evening started with remarks by David McCarthy, CREFC Managing Director, Chief Lobbyist, and Head of Legislative Affairs. David updated attendees on the latest happenings in Washington, D.C., and discussed a number of high priority matters for CREFC. David took questions from our audience, which included a question that is on the minds of many: What is Congress going to do about the cost of insurance? Unfortunately, there are no easy answers, and increased insurance costs are likely to be a part of the new normal for the foreseeable future.
Our first panel addressed “Unstacking Capital: Filling Gaps in the Capital Stack.”
Moderated by Siobhan O’Donnell Sachs, co-leader of Ballard Spahr’s Real Estate Finance Group, the panel included Eliav Dan, Senior Managing Director at Greystone & Co.; Shannon Erdmann, Managing Director at Apollo Global Management; Michael Fleischer, Managing Partner and Head of Bridge & Event-Driven Originations at 3650 REIT; Corey Hall, Director – Real Estate at KKR; and Teresa Zien, Managing Director at Invesco.
We started the discussion with the panelists’ thoughts on what is driving deals beyond just “penciling out.” A higher interest rate environment was an obvious answer: borrowers who had a 3.5% interest rate two years ago are having a hard time swallowing today’s rates. There is also the issue of value. Even in non-distressed situations, valuations are under pressure based on higher cap rates along with higher costs and, in many cases, cooling rents, resulting in disagreements between borrowers and lenders (and buyers and sellers) as to what current values are. The general lack of price discovery is not helping matters. The panelists then turned to a discussion of what is being done to get deals to work. The panel discussed rate buy-downs, preferred equity (tough when you don’t have the cash flow to pay current), and the increasing role of C-PACE (Commercial Property Assessed Clean Energy) in ground-up construction deals.
The second panel—“New Buildings on the Block: Looking Beyond Office”—was particularly timely. Moderated by Kelly M. Wrenn, leader of Ballard Spahr’s Banking and Financial Services Industry Team, the panel included Vicky Schiff, CEO at Avrio Real Estate Credit; Robert Stanbrook, Portfolio Manager at DoubleLine Capital; Whitney Wheeler, Director, Special Servicing at SitusAMC; and Jaime Zadra, Managing Director at PGIM Real Estate.
It seems clear there’s not a lot of investor appetite for office these days. The panel discussed issues with multifamily, data centers, and life science projects. Some panelists also addressed issues coming to the forefront with respect to distressed loans. Looking forward: Players want to do deals and have the money to do them—it is just a question of finding the right project, one that makes sense in the current economic climate (but maybe not office).
Both of these panels highlighted what we have been hearing from clients and expect to see in the near term regarding the role of private credit providers in real estate finance. The current economic and regulatory environment is ripe for growth in the private credit sector. We expect to continue to see increased participation of private credit providers through the remainder of the year and 2025. These parties have unique opportunities to provide capital for real estate projects at attractive risk-adjusted returns, as we detailed in our Legal Alert from last October, “Developing Opportunistic Real Estate Lending Market Poised to Thrive.”
With more than 85 lawyers in our Real Estate Finance Group throughout the United States, and a national Distressed Assets and Opportunities Group, Ballard Spahr offers nationally recognized skill and experience, local market knowledge, and a comprehensive understanding of the issues that drive transactions and markets. Our team is one of the most active in the country, with extensive experience in developing, structuring, negotiating, servicing, restructuring, and enforcing a wide variety of complex real estate finance transactions on an individual, portfolio, and programmatic basis.
In addition, Our Distressed Office Buildings Team brings together real estate, finance, leasing, zoning, construction, condominium, enforcement, bankruptcy, and tax lawyers to analyze the most complex and demanding of situations and structures. The team recently hosted a webinar, “Distressed Office Buildings: Considerations and Strategies,” with an accompanying white paper, as well as a podcast entitled, “Distressed Office Buildings: A Look at Workout and Enforcement.”
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