While the consensus was that the Fed would press pause on future rate hikes, it seems that we should be bracing ourselves for more increases as employment and wages are persistently higher than expected. Despite the road ahead looking bumpy for CRE, we continue to be optimistic as both debt (non-traditional) and equity are aggressively looking to transact as more opportunities arise.

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Having said that, we’re seeing a substantial increase in bridge and sub-debt requests which debt funds and family offices are pouncing on – it’s time to put all of that opportunistic capital to work. This has allowed us to remain optimistic and continue to structure financings that are accretive to our clients. 2023 is going to be an interesting year.

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Being an active advisor to both developers and owners/operators, we have seen the shift in attitude towards borrowing and underwriting new acquisitions. On the one hand, borrowers are quick to accept a “decent” offer while on the acquisition side they are more conservative with their financing and exit assumptions.

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However, this volatility also presents opportunity, as lenders and investors are recalibrating their strategies and are anticipating more recapitalizations and acquisition of NPL’s. As we continue to help our clients navigate these choppy waters, it is interesting to see if the Fed achieves its “soft landing” or if we are heading into a 1970’s type stagflation.

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This has had a direct impact on all types of financings as lenders of all stripes have been forced to increase spreads and include an uncertainty premium to all bids. Borrowers on the other hand are being forced to reconsider their financing strategy, if not scrap it all together and sit on the sidelines to wait out the storm; if they are fortunate enough to have that option.

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However, assets have been performing well which has given lenders (both senior and subordinate) more confidence to pursue deals they wouldn’t have the prior 18-24 months. The same holds true for mid-market transactions/projects, with lenders actively looking to put new loans on their books while also tweaking pricing and leverage to almost pre-pandemic levels.

SCP has started the year with a healthy pipeline of construction and bridge assignments which have been well received by the market. Despite the headwinds and noise we remain optimistic for 2022 and look forward to helping our clients capitalize their projects and more importantly get back to work.

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In addition, the amount of liquidity, both debt and equity, has increased while the availability of product is noticeably low. This is definitely an interesting period we’re going through and we remain optimistic about 2022, despite the obvious headwinds we are facing.

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In addition, conventional balance sheet lenders are starting to open up to bridge-to-permanent financing requests, with cash- out components. Pleasant news for borrowers, especially compared to the market conditions of the last 18 months.

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When you pair that with less rental concessions and upward pressure of wages – the national average hourly rate increased 3.50% y-o-y – we may see green shoots for the multifamily sector in NY, which may hopefully spillover to other asset classes such as retail, office and hospitality. Regardless, of what happens we are just happy to see some sense of normalcy in both the debt and equity markets with pricing and terms approaching pre pandemic levels. For more information in regards to what we are seeing feel free to reach out to us.

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Both balance sheet and securitized lenders are showing an interest in transactions they would simply pass on 6 months ago, while also offering attractive terms. However, new construction activity in New York is still subdued and, we hope, simply a result of the lack of available financing over the past 15 months. As life begins to normalize we are cautiously optimistic that transaction velocity will increase and valuations, along with cash flows, will stabilize.

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