Shawbrook’s Post

"In the midst of every crisis lies great opportunity." - Albert Einstein Commercial real estate's reliance on regional banks is not just a statistic but a reality. According to the Federal Reserve, regional banks account for nearly 70% of all commercial real estate loans made by banks. This concentration underscores the potential impact of any disruptions in their lending practices, highlighting the critical importance of their role in the market. A stable debt environment is essential for real estate market stability, driving both pricing stabilization and increased transaction volumes. Regional banks face a significant challenge due to their substantially larger exposure to commercial real estate compared to national banks. This vulnerability is further emphasized by a report from the Mortgage Bankers Association, which reveals a 24% drop in loan originations for commercial and multifamily properties in the first quarter of 2024 compared to the previous year, indicating tightening credit conditions. These lending constraints will create substantial headwinds well into 2025. Yet, this challenge also presents a unique opportunity for organizations like ours, which invest in commercial real estate and hotels, particularly within the credit sector. By navigating these headwinds effectively, we will leverage our expertise and resources to capitalize on the evolving market dynamics. Peachtree Group Peachtree Group Credit Peachtree Group Hospitality Management Jared Schlosser Brian Waldman Jatin Desai Daniel Siegel Brent LeBlanc Michael Ritz Laura Benitez Bloomberg John Murray PIMCO #privatecredit #regionalbanks #banks #cre #commercialrealestate #bankfailures https://lnkd.in/gkitT8xS

High interest rates and a lack of M&A are contributing to an increase in the default rate in Fitch's portfolio of privately monitored ratings. Until the market gets some confidence that rates are heading back down, we expect the default rate to remain elevated. #middlemarket #privatecredit #directlenders #leveragedfinance #leveragedloans

[2 of 2] Then, at a meeting in Florida a few weeks later, the #SBA announced that you could not #amortize the whole deal over 25 years even if real estate was 51% or more of the transaction. It was the bank's choice of either a blended rate between business and real estate, or 25 years for real estate and 10 years for the business. Ok, the problem with that is we underwrote the deal based on 25 years for the whole project and now it did not #cashflow properly at a blended or separate 10/25 year amortization! Wow! So this really put us in a predicament because we had already issued a contingent committed to the borrowers. We based our decision on our interpretation of what the SBA had told us and it was not clear. So we had a big decision to make. Do we kill the deal or do we honor our commitment? We felt killing the deal would not be the right thing to do to our borrowers considering it was not their fault in any way. We kept our word, and even with the lighter cash-flow coverage, we kept the ball rolling - https://ow.ly/bOlI50QQLaa

[2 of 2] Then, at a meeting in Florida a few weeks later, the #SBA announced that you could not #amortize the whole deal over 25 years even if real estate was 51% or more of the transaction. It was the bank's choice of either a blended rate between business and real estate, or 25 years for real estate and 10 years for the business. Ok, the problem with that is we underwrote the deal based on 25 years for the whole project and now it did not #cashflow properly at a blended or separate 10/25 year amortization! Wow! So this really put us in a predicament because we had already issued a contingent committed to the borrowers. We based our decision on our interpretation of what the SBA had told us and it was not clear. So we had a big decision to make. Do we kill the deal or do we honor our commitment? We felt killing the deal would not be the right thing to do to our borrowers considering it was not their fault in any way. We kept our word, and even with the lighter cash-flow coverage, we kept the ball rolling - https://ow.ly/NXU650QQLa8

Prepare your clients with plans to finance commercial property this year or who rely on working capital lines of credit, to diversify their funder relationship. Regional banks face some headwinds. There may or may not be closures, but there will be tightening of credit, including reducing or closing lines of credit. Regional and community banks tend to be the most small business friendly, but now face challenges with payment defaults due to pandemic-induced changes in demand for commercial space. If advising business owners, now is a good time for some creative thinking on strategies and funding options to fund their business growth. #bankingindustry #bankingandfinance #smallbusinessloans #smallbusinesssupport #cashflow #realestatefinance #alternativefinancing #creativecapital https://lnkd.in/gqHr8-qa

M&T Bank (NYSE:MTB) has reported a sharp decline in fourth-quarter earnings as net interest income dipped and it increased provisions for credit losses. The Buffalo, New York-based #bank reported a 6% year-over-year decline in net interest income to $1.72 billion for the three months to December 31, 2023. It raised provisions for credit losses by 150% to $225 million, citing continued pressure on investor-owned commercial real estate borrowers and a $1.7 billion increase in loan balances from the prior quarter. Diluted net operating earnings fell 31% to $2.81 per share, below the $3.67 consensus of analysts polled by Zacks Investment Research. More at #Proactive #ProactiveInvestors http://ow.ly/OUNl1059tSu #NYSE #MTB

Author Shankar Ramakrishnan dives into the approach for assessing NAV loan credit risk, along with their inherent valuation difficulties, through the lens of top ratings agencies. This has never been more relevant. 'Banks and insurers are making more requests to U.S. credit agencies for ratings on their risky loans to private equity funds that are secured against the value of their portfolio investments and cash flows that come from them', according to the article published in Reuters this morning. Insights directly from Global Head of Funds Group Greg Fayvilevich of Fitch Ratings, Global Head of Fund Rating Gopal Narsimhamurthy of KBRA, MD Rory Callagy of Moody's Ratings, MD Nik Khakee of Standard & Poor's Financial Services LLC's, and Financial Institutions MD Devi Aurora at S&P Global Ratings. #NAVLending #NAVLoans #FundFinance #PrivateDebt Moody's Corporation Moody's https://lnkd.in/ePDiz9qf

The rating agencies, well at least one rating agency, Moody's is/are finally taking notice that banks may have an issue with what is and has been happening in the commercial real estate markets. During an interview with Scott Rechler and ULI's about the "Opportunistic Funds Take Aim The Looming Debt Crisis" last week he mentioned that 500-1000 regional banks were at risk of either being closed or being merged into larger better capitalized banks in the near future. This could be the start of the players in the capital markets waking up to what has been slowly brewing for a while. interest rates are still high(er) and employees are still working from home, at least one or two days a week or more meaning that the companies that they work for don't need to lease as much space as they used to lease. By the way law firms have been reducing their square footage for years as the amount of actual paper that needs to be kept on site and the reliance now on digital research materials has taken over their need for actual law books, except for show during meetings and Zoom calls with clients. Thankfully some of the older more obsolete office properties are being taken off the market and will either be demolished and/or converted into new offices or residential properties which in turn should preserve some of the value of the remaining office stock. What are you experiencing? Are you still working in an office? If yes how many days a week? #CRE #RealEstate #CommercialRealEstate #CREFinance #RealEstateFinance #CommercialRealEstateFinance #Banks #CREBanks #RealEstateBanks #CommercialRealEstateBanks https://lnkd.in/eK8FaYrf

River City Bank: Thinking big while staying grounded! 💸 💼 Experiencing rapid growth in recent years, the bank's commercial real estate loans now make up 660% of its capital. With the level of market downturn, banks are facing challenges in refinancing, especially in California's office markets which have been impacted by the pandemic. Michael Imerman, faculty director of the master of finance program here at the Merage School of Business, warns that "small banks cater to a specific clientele and that can lead to an age-old problem: concentration risk". #UCIMerage Read more here: https://bit.ly/3W3Tqft

Lloyds Banking Group has teamed up with Oaktree Capital Management, L.P. to finance UK buyouts, marking its strategic move into the private credit industry. As traditional banks seek to redefine their roles in the $1.7tn private credit sector, this venture highlights the evolving landscape. Learn more from Eric Platt and Akila Quinio at the Financial Times about how Lloyds and Oaktree are navigating this competitive market. https://lnkd.in/eSRixaRK #PrivateDebt #PrivateCredit