ATLANTA, GEORGIA (February 22, 2023) – Faron Thompson, senior vice president/regional managing director of Northmarq’s Atlanta debt/equity team, provided France Media’s Southeast Real Estate Business with responses for their 2023 Lender Insights. The special section features direct lenders and financial intermediaries from across the region who cover the challenges and opportunities in the year ahead, factors most affecting the lending environment and the property sectors to watch during 2023.
Southeast Real Estate Business (SREB): In what area(s) of commercial real estate do you see the biggest business opportunity for your company in 2023?
Thompson: There are three areas where we anticipate business opportunities for Northmarq this year. First, refinancing short-term bridge loans that were made in the last 24-30 months. Second, working with merchant developers to refinance/recapitalize newly built projects that are coming up short of original sales price expectations. Third, sub-debt (preferred equity and Mezz debt) will be back in demand.
SREB: Are commercial real estate borrowers more interested in fixed- or floating-rate financing today versus a year ago and why?
Thompson: Most borrowers are pursuing maximum prepayment flexibility. Historically, that’s most easily done with floating-rate debt. However, several lenders are introducing 5-year fixed rate debt with prepayment flexibility, especially in the last 2 years. Additionally, in this rising rate environment, borrowers who originally intended to sell as an exit are using short-term loan structures to buy some time to a better sales market (which most expect to occur in 24-36 months). Longer-term holders of properties are also interested in shorter-term structures, as they expect longer terms rates to be better in 24-36 months.
SREB: What is your company’s lending or debt placement strategy for 2023? Are there any new lines of business or opportunities that you are pursuing?
Thompson: Northmarq is well-positioned to service our borrowers’ lending requirements. As a company, we have relationships with banks, debt funds, and alternative lenders, in addition to 60+ life company correspondencies, and all three agency licenses.
SREB: Are there any common questions you are fielding from borrowers today, and if so what are they and what advice are you giving them?
Thompson: We are frequently asked about the direction of interest rates. To that end, we craft debt structures that provide the most flexibility to respond to what likely will be an increased interest rate volatility year. Additionally, our clients are interested in strategies for bridging the bid/ask gap in property sales. With this in mind, we are creatively using in-the-money interest rate caps to manufacture a lower ongoing cost of debt capital. Additionally, we also use short-term fixed rates with flexible prepayment options. Finally, for those seeking longer terms, we’re sourcing debt capital with intra-term rate cap resets.
Read Thompson’s contribution in Southeast Real Estate Business.