The real estate debt market is at a crossroads, marked by resilience, recalibration, and new opportunities amidst significant challenges. Speaking at PEI’s annual Women in Private Markets Summit in London, Piermont Bank Founder and CEO Wendy Cai-Lee provided insights on navigating this evolving landscape.
In re
cent years, many lenders became overexposed to commercial real estate (CRE), and now face hurdles in engaging with new lending or refinancing activities as they address their previous commitments. This recalibration is further complicated by a rising wall of $2 trillion debt maturities in CRE loans initially issued during an era of low-interest rates. However, as interest rates begin to stabilize or decline, opportunities are emerging for adaptive and innovative strategies.
New opportunities for banks and borrowers
Cai-Lee used Piermont Bank as an example to emphasize that banks less impacted by past overexposure are well-positioned to seize lending opportunities in today’s CRE market. She encouraged borrowers to be proactive – start transparent and comprehensive conversations with bankers to copilot for financing options. She noted that as borrowers move away from higher-cost debt funds, banks prepared to lend in the current environment can become pivotal partners.
Collaborative financing solutions
Cai-Lee also highlighted the potential for collaboration between banks and non-balance sheet lenders, or, debt funds, to address borrowers’ needs with innovative solutions. Strategies like note-on-note financing could provide an effective avenue to overcome bottlenecks and sustain the CRE industry’s growth more immediately, provide additional dry powder for the fund, and improve returns while allowing the bank to take on lower leverage, a true win-win. She anticipates continued increase in note-on-note financing across asset classes and deal size
The path forward
As the CRE debt market grows increasingly complex, adaptive approaches are critical to managing risks while delivering value. A culture of collaboration, transparent communication, and innovation will be instrumental in unlocking opportunities in this dynamic market.
Now is the time for borrowers and lenders alike to embrace forward-thinking strategies, ensuring the industry continues to thrive in a rapidly shifting financial landscape.