Real Estate Finance’s January Thaw
For much of the United States, it was a very cold January. Unrelenting frigid temperatures, icy roads, cold winds—snow in New Orleans. In the Northeast, we’re accustomed to a January thaw, and not just the two days or so of barely-above-freezing-temperatures we received. Where was the January thaw we needed?
Our weather may not have included one this year, but the economic climate for real estate finance did. How much and for how long is still tough to measure, especially since a lot of it’s happening below the radar. But lending has been loosening up, with a variety of capital providers interested in the heightened potential for dealmaking brought about by a combination of lower interest rates, better fundamentals and more attractive deals, as Dees Stribling discusses in this month’s feature, “Best Capital Stack Strategies for 2025.”
“Greater confidence in the economy and improved rates of return on property investments will drive this activity, despite the continued high cost of debt capital,” Darin Mellott of CBRE told Stribling. And while alternative capital sources have seemed more interested in stepping in, this should even result in greater lending by life companies, CMBS conduits and commercial banks, according to Charles Krawitz of Alliant Credit Union. There’s also some pressure to invest more debt and equity to spread risk and meet institutional allocations.
There are still deterrents for lenders, of course. Interest rates aren’t expected to drop as significantly as had been forecast, as the most recent lack of movement indicated. There’s still a good-size chasm between bid and ask limiting deal flow. And in many cases distress is still getting the proverbial kick down the road, so those situations aren’t yet being dealt with.
But the markets are pricing in a greater likelihood of a soft landing, Brian Klinksiek of LaSalle Investment Management noted during a recent press conference about the firm’s 2025 Global Outlook report. As prices and rates better align with the bond market, capital providers will be more comfortable moving ahead with transactions.
Our newly released ranking of Top Mortgage Banking and Brokerage Firms, which measures activity in the 12 months through Sept. 30, 2024, reflects the market’s challenges. But as Senior Associate Editor Agota Felhazi notes in her accompanying commentary, the Mortgage Bankers Association measured an uptick in loan originations in the second half of the year that was evident in some firms’ volume. Next year’s ranking seems likely to demonstrate more widespread growth.
Punxsutawney Phil just saw his shadow, but six more weeks of winter don’t have to be frigid. Or apply to finance. I don’t know about you, but I’m ready for a thaw.
Read the January 2025 issue of CPE.
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