KBRA releases a recap of the CRE Finance Council’s (CREFC) 16th annual High Yield, Investing & Lending Conference, held on May 3 as a one-day virtual event. KBRA was a participating sponsor of the summit, which included a fireside chat followed by five panel discussions and attracted 363 registered attendees.

Several key themes that emerged from the panel discussions include:

• The focus on bank stress and regional lenders is warranted. However, exposure may be overstated, as media reported figures attributing 80% of CRE lending to midsize and regional banks often overlook non-FDIC insured private lenders.
• Not all regional banks are created equal, despite recent headlines. The U.S. banking system is relatively granular with over 4,000 FDIC-insured participants.
• Private capital has moved into the vacuum created by the regional bank pullback. However, lenders have limited options to clear their balance sheets without an active securitization market.
• Preferred equity is becoming more popular as lenders are offering borrowers less favorable terms in the form of lower loan-to-value (LTV) ratios; cash-in refinancing is seen as a win.
• Office-to-residential (or mixed-use) conversions, critical to combating housing shortages, will require public-private partnership and a dramatic reset in basis to be viable.
• Despite the negative outlook toward office, many properties remain viable if sponsors are willing to invest in upgraded amenities or perform partial conversions.
• There has been a push for more fundamental underwriting, especially for multifamily, industrial, and life sciences, with a focus on flattening rents, increasing operating expenses, and evaluating tenant funding sources (primarily venture capital (VC)-backed life sciences).
• Directional clarity from the Federal Reserve would benefit CRE as interest rate uncertainty remains a major issue.
• Additional government intervention on behalf of borrowers or lenders is undesirable due to potential inflationary pressures and political fallout.
• The sale of Signature Bank’s $60 billion loan portfolio will reset loan pricing and guide investors industry wide.
• Construction lending, specifically on multifamily, remains relatively strong, though many light-transitional deals are falling to the wayside as would-be bridge loans are getting swapped for five-year fixed loans.
• Intermediate-term products, such as the five-year conduit, have provided some liquidity, but may not have staying power if rates decline.

To view the recap, click here.

Related Publications

• CMBS Trend Watch: April 2023
• CMBS Loan Performance Trends: April 2023
• CMBS Office Exposure to Large Layoffs

• Conduit CMBS Default and Loss Study Spotlight on Five-Year Loans
• CRE Secular Trends: How Long Will Tailwinds Benefit Industrial?

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KBRA is a full-service credit rating agency registered in the U.S., the EU, and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.

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