The Tides Are Shifting: A Bridge Lender’s Insights Into The State Of Capital Markets, What Opportunities Lie Ahead

In 2022, CRE lending sank by 8%, and since then the capital markets have continued to tighten due to persistent interest rate hikes, inflation and multiple bank failures. With the Federal Reserve increasing interest rates for the 10th time in just over a year, interest rates now sit at the highest they’ve been in 16 years, causing uncertainty in the CRE industry.

Developers, however, still need to get deals done — leaving room for alternative financing methods, such as bridge lending.

“In this market, we’re seeing financing trends move towards flexible options that are more short-term,” Senior Vice President at Emerald Creek Capital Dean Wang said. “Bridge loans allow borrowers to navigate market volatility, while still making the most of market opportunities.” 

Emerald Creek Capital provides bridge loans to CRE borrowers across the light industrial, self-storage, retail, multifamily and condo inventory sectors. Since 2009, the firm has closed 500 deals, deploying more than $2.8B in capital.

Bisnow spoke with Wang to learn how the alternative lending space is faring in today’s volatile economy, how financing trends have shifted and how Emerald Creek Capital is approaching deals and overcoming market challenges.

Bisnow: What are some of the challenges facing your segment of the CRE industry? How does Emerald Creek approach these challenges?

Wang: Due to the illiquidity in capital markets, especially for bank takeout financing, bridge debt funds are holding loans for longer than normal. We maintain an open line of communication with our borrowers and have provided flexibility through extension options or restructuring to help mitigate these risks. 

At the same time, we’ve been able to diversify by deploying capital secured by higher-quality assets and more institutional sponsorships, which traditionally would have sought longer-term traditional financing. These sponsors have the additional wherewithal to help us get comfortable with the underwriting in an otherwise challenging market. 

At the end of the day, we’ve always focused on lending against quality assets at a reasonable leverage, and believe in the long-term growth of the markets we invest in. 

Bisnow: Have financing trends changed with rising interest rates and inflation? What role do bridge loans play?

Wang: We’ve seen financing needs shift towards shorter-term flexible options. Bridge loans can provide borrowers with the necessary capital to take advantage of time-sensitive investments or to buy time to reposition assets and wait for more favorable conditions in the capital markets. 

In volatile times, bridge loans offer borrowers the ability to navigate the uncertainty, while still benefiting from the market opportunities that have been created. 

Bisnow: Can you talk about a notable deal you closed recently? 

Wang: We provided acquisition and renovation financing for a gut rehabilitation of a 10-unit, mixed-use project on the Lower East Side of Manhattan. The deal was unique in that the sponsor was looking to sell easement rights for wireless antennae on the roof and needed a lender with the capacity to structure either a simultaneous closing of the acquisition and sale or a post-closing release and paydown of the easement. 

There were a lot of moving pieces in this transaction, and we were able to provide the structure to help them get the deal done in a timely fashion. 

Bisnow: What deal opportunities are most attractive to Emerald Creek today?

Wang: We are currently focused on multifamily and industrial assets. Multifamily has shown great resilience throughout the post-pandemic recovery and is bolstered by the ongoing need for housing. The industrial sector continues to experience a healthy demand for supply chain infrastructure. 

Nationally, we’re looking at warehouses and distribution facilities located in ports or urban infill locations with easy access. We also think highly of service-oriented retail, which remains in strong demand and a vital component of American daily life. 

Bisnow: Have the recent bank failures had any impact on the bridge lending space? How can Emerald Creek help?

Wang: As a result of the failures, some borrowers are having trouble securing financing from traditional sources, especially for transitional or nonstabilized properties. 

We’ve seen an increase in demand for our financing solutions as borrowers seek alternative sources of capital to fill the gap. This has allowed us to selectively pursue high-quality opportunities that meet our underwriting criteria and risk-return parameters. 

We’re also seeing wider spreads and higher yields on bridge loans, providing our firm with more attractive returns on our investments. However, we remain diligent in our underwriting process and credit analysis, ensuring that we continue to maintain a disciplined approach to risk management despite the increased opportunities.

Bisnow: You’ve been at Emerald Creek for almost eight years. What do you enjoy about being a part of the firm?

Wang: I think the great thing about working here is how we can be creative in facilitating options for our borrowers. Seeing successful projects that otherwise would not have gotten done — and building long-term relationships with borrowers and others in the industry — is rewarding and gives me a very real sense of accomplishment.

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

Studio B is Bisnow’s in-house content and design studio. To learn more about how Studio B can help your team, reach out to studio@bisnow.com.