DALLAS, TEXAS (February 21, 2023) – Farhan Kabani, senior vice president of Northmarq's Dallas debt/equity team, provided France Media’s Texas 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.
Texas Real Estate Business (TREB): What is the biggest challenge you anticipate in 2023 as a direct lender or financial intermediary in commercial real estate?
Kabani: The biggest challenge is setting a benchmark for rates. The cost of capital is obviously the driver. Once we have a clearer direction of what to expect over the next 12 to 24 months as it relates to the Federal Reserve, we'll have a better ability to reach proforma targets and thus execute.
TREB: In what area(s) of commercial real estate do you see the biggest business opportunity for your company in 2023?
Kabani: Multifamily is the go-to constant because of high housing demand. Build-to-rent has a ton of opportunity as well. Industrial remains a hot commodity, albeit there's a bit of pressure on rents. Also, adaptive reuse of retail is a strong opportunity.
TREB: To what extent has the spike in interest rates over the past 12 months affected your firm's expected lending volume and/or strategy for 2023?
Kabani: We anticipated a soft first quarter for deal volume for refinancing and acquisition financing. Hopefully by March, the Fed will set clear expectations, in which case, we anticipate that beginning in summer through the end of 2023 we will see very strong volume.
TREB: 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?
Kabani: We see continued opportunities in construction lending for multifamily and retail product. From a permanent financing standpoint for multifamily, the agencies are still the go-to. Meanwhile, life insurance business for long-term take-out financing is still a popular strategy. In terms of new lines of business, looking at the full capital stack will be even more important moving forward, especially as there's still pricing and discovery-related question marks.
TREB: Are there common questions you are fielding from borrowers today, and if so, what are they and what advice are you giving them?
Kabani: One common question is "How can I execute my deal today?" Borrowers realize that rates aren't changing in the near term and understand the costs associated with construction or acquisitions. They're trying to decipher whether to act or wait. Our advice is to research every lending avenue. The best way to discover possible outcomes is to explore every possible solution in the capital stack.