Shadow Banks Keenly Eye CRE Ahead of Meetings: Structured Weekly

(Bloomberg) — Non-bank lenders are excited about commercial real estate in 2024 as market participants prepare to head to Miami for next week’s annual CRE Finance Council conference.

That’s because interest rates remain high and plenty of loans are coming due, an attractive combination for firms that have cash on hand to deploy opportunistically. New lenders will have lots of entry points into the battered market to pick from.

“It’s a year of tremendous opportunity,” said Rob Lawrence, global head of real estate at FS Investments. “Now is a great time to be a commercial mortgage lender that has dry powder.”

Turmoil convulsed US commercial real estate last year, and in 2024 the market faces a nearly $550 billion wall of CRE debt coming due this year, according to loan data firm Trepp. Values on office buildings are being slashed in half, and in Federal Reserve meeting minutes this week officials said they expect delinquencies on loans inside commercial mortgage-backed securities would likely surge over the next few quarters, given the large volumes of loans coming due.

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At least one main traditional real estate lender — banks — remains on the sidelines thanks to the regional bank scare beginning in March and new, tougher capital rules. That leaves shadow lenders — firms such as life insurance companies and even CRE CLOs —  in good position to increase lending, according to Lisa Pendergast, executive director of CREFC.

“Banks are going to be hit by Basel III at the same they are dealing with a tsunami of commercial real estate loan maturities,” she said, noting that a majority of those loans have much lower mortgage rates than today. “It opens the door to other types of lending.”  

The conference is likely to be a venue for these lenders to network and get a better sense of upcoming lending opportunities, she said.

It’s no secret that non-bank lenders are stepping in to fill a void left behind by banks, including larger players such as Carlyle Group Inc. and Castlelake LP, two top private credit lenders.

“It’s clear to me based on both my market sense and after talking to many players in the market, that participants and lenders are looking forward to 2024,” said Holly MacDonald-Korth, chief executive officer of KDM Financial, a middle-market commercial mortgage lender.