The CRE Lender’s Guide To Being Prepared
In an increasingly complex and rapidly evolving economic climate, commercial real estate (CRE) lenders need to be prepared to take action to protect existing loan portfolios from broader macroeconomic conditions. A confluence of events culminated in the current state of the market, starting with coronavirus business closures, stay-at-home orders, supply-chain disruption, pandemic work-from-home and, most recently, inflation. The Federal Reserve, during its January 31 to February 1, 2023 meeting, acknowledged a level of concern related to financial stability and vulnerabilities associated with higher interest rates and elevated valuations, “particularly in the CRE sector.” Prognosticators are expressing concerns that commercial real estate may be the next sector to disrupt financial markets as lending standards for CRE loans continue to tighten.4 If these conditions progress, as loans mature, sponsors will have challenges refinancing existing indebtedness. Without viable exit strategies to address pending maturities, loan workouts could be on the horizon in 2023. In light of these turbulent conditions, the prudent lender must be prepared for CRE loan defaults and delinquencies. What will this preparedness look like?