CORFAC International: Investors And Real Estate Advisers Need To Talk Now About What’s Next

With fluctuating interest rates impacting deal pricing and loan refinancing, owners and investors are faced with a reckoning in 2024. Prior to 2020, the upward trajectory of the real estate market was forgiving for investors and deals. In a low-interest-rate and very liquid environment, real estate was a popular option for placing capital.

Now that some of those deals are reaching maturity over the next few years, it is time for real estate advisers and their clients to do a proactive audit to ensure they are in good standing on all of their loans. Bisnow spoke with brokers from CORFAC International to learn more about what these conversations should entail.

What To Expect When Refinancing

“It’s time for owners to ask, ‘If we have to refinance, how much equity would we need to put in?” said Hayim Mizrachi, president and principal of MDL Group/CORFAC International in Las Vegas. “If loans are maturing in the next year, they have to understand how the fluctuation in interest rates will impact a refinance. For example, for a five-year loan coming up this year, interest rates have doubled during that time.”

Owners should also review cash flow to see if increased reserves are needed in the near term to avoid coming out of pocket to refinance, he said.

Patrick Hudson, land sales associate at Endura Advisory Group/CORFAC International in San Antonio, said that for clients with a loan coming due soon, he advises exploring refinancing options early and proactively engaging with lenders to discuss potential extensions or new loan terms to avoid last-minute complications.

“Some lenders do not have the capacity to renew existing loans, so it is important to know that as soon as possible so the borrower can pursue other options,” Hudson said. 

Scott Hensley, principal of Piedmont Properties/CORFAC International in Charlotte, said that in his market, some of the most active lenders over the past decade have shut off the spigot. 

“There are still lenders out there with the ability to loan, but it requires research and networking to know who they are,” Hensley said. “Clients should also be prepared to start or expand their deposit relationship with the lender.”

CORFAC brokers Bisnow interviewed said an upcoming refinance is going to require proactive measures. Every margin will matter, including how the property is managed and what improvements can be made. It could be the difference that prevents a forced early sale or foreclosure. 

“In scenarios where debt service coverage ratio or other loan covenants are an issue or have the potential to be problematic, we are advising our landlords to pursue deals with added incentives to capture quick deals, even if there are longer-term opportunity costs associated with those deals,” said Joel Meyer, principal of Intelica/CORFAC International in St. Louis. 

Sales And Purchases Have Become More Complicated

If attractive financing isn't available or the amount of equity doesn’t make sense, a sale might be the best option. Investment sales have slowed significantly, so fewer deals are available to price against for considering a sale or purchase. This makes it more important to work with a broker with knowledge of local deal trends, because they will have a better understanding of where values are in the market for comparable properties, Hensley said.  

Since values are changing, cap rates, which evaluate return based on operating income, are also changing. All asset classes are affected, with industrial and retail faring well while office and multifamily are in flux. 

“Any advice we give clients is extremely dependent on product type,” Hensley said. “During a recent meeting with a regional lender, they told us industrial, retail and even hotel products remain attractive, but they would not touch office or raw land.”

One issue with the increased complication of sales and purchases is the gap between where sellers are pricing and what buyers are willing to spend hasn’t been bridged, Mizrachi said. 

“Potential buyers will not be able to buy at very low prices and expect high returns like we did during the global recession,” Mizrachi said. “Proactive buyers should work with a broker that’s closely monitoring the marketplace and knows the deal that they’re prepared to make when it becomes available.”

Potential For Deals Ahead

Though pricing may not change significantly this year, CORFAC brokers said the market may see more deal activity with interest rate cuts that are being signaled by the Federal Reserve. 

“I feel the disparity between buyers and sellers will narrow with the potential changes in the debt markets,” Meyer said. “Equity is abundant, as it has been, but better alignment between buyers and sellers will improve with interest rate drops and bring equity off of the sidelines where it has been for the last 12 to 18 months.”

CORFAC brokers also said they are optimistic for more stability this year but acknowledged that the high rates will continue to impact deal activity. In addition, any unforeseen event that rattles the capital markets could cause even more turmoil in real estate financing. 

With timing and local market knowledge paramount, owners and investors should look to a trusted adviser that can help them plan their next moves, Hensley said.

This article was produced in collaboration between CORFAC International and Studio B. Bisnow news staff was not involved in the production of this content.

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