State of the CRE Debt Market
What is the current state of the CRE debt market?
The state of the debt market has recently witnessed a confluence of concerning factors, including downgraded credit ratings by Fitch and Moody’s on the U.S long-term credit and the credit ratings of over 27 U.S banks, as well as whisperings of the U.S Treasury planning to issue approximately $2 trillion of debt through the remainder of the year as noted in Newark’s recent CRE Debt Market Update.
This growing debt burden coupled with rising interest rates is beginning to create a debt spiral that may leave debt markets tumultuous for the foreseeable future. Although, across the lending market there is still the availability of debt reserved for the borrowers who are able to meet lenders’ exceptionally selective requirements, leaving room only for the best-in-class investment managers.
How is BKM handling the turmoil in the debt markets and managing to secure financing on its industrial properties?
BKM continues to find opportunities in the market despite the current state of debt. We have secured attractive financing on three of our industrial properties during 2Q 2023, including the refinancing of one of BKM’s trophy assets in Burbank, CA and the closing on a transaction with a new JV partner on the acquisition of a class-A industrial asset in Carlsbad, CA. During this time BKM also executed a loan modification on a prime Las Vegas property resulting in a $9M cash-out. BKM has been a very active buyer in the market during the first half of 2023, having closed on 13 properties and executing over $350M in transactions. Heading in H2 2023, we are looking to transact on another $500M in assets by year end.
BKM’s exceptional track record managing light industrial assets along with our extensive and well-maintained lender network allows us the opportunity to execute these deals at very favorable terms, making us a very active player in the industrial market even as the Fed continues to apply downward pressure on rates and transaction volumes dip back to normal across the sector.
The industrial asset class, and more specifically multi-tenant assets provide flexibility through short-term leases that are not often seen in other sectors of CRE, preventing stagnant NOI growth and providing more frequent opportunities to bring rates to market. Lenders find the fundamentals of industrial assets favorable to their lending criteria, with the industrial market experiencing record growth over the last few years while other asset classes experience turmoil. Healthy supply and demand metrics coupled with continuously high occupancy rates and rent growth create favorable conditions for lenders and investors alike in this sector, even during such a time of economic volatility. Furthermore, employing a vertically integrated platform allows operators like BKM to effectively execute on business plans that might prove challenging for other operators who have solely relied on rent growth in recent years as a means of survival.