This Private Lender Predicts Commercial Real Estate Investors Will See A Slow Trickle In Performance In 2023, Not A Crash

This has been an opportunistic year for many private equity and lending firms. Traditional bank lending has dried up, with up to 45% of commercial real estate (CRE) projects having to find alternative funding. Many in the CRE sector have stopped building altogether, but those who had balloon payments due and found banks shying away from new and ongoing projects have had to find private funding to complete them.

Benzinga talked with Alex Horn, managing partner of Miami-based private mortgage lender BridgeInvest, to discuss the current market environment and what he sees for private funding for the rest of 2023. 

Benzinga: How has the private investment market changed in the past year, with bank lending becoming more scarce?

Horn: In the last six to 12 months, we’ve seen a massive outflow of capital when interest rates increased and those who had deposits in banks didn’t keep it there because it didn’t make sense. People started taking money out and because banks rely on deposits, and we had bank failures where $270 billion left regional banks.

Benzinga: How are banks responding to these dwindling funds?

Horn: Today, banking is so depository focused that when we talk to them, a lot of the conversation consists of “yes, we can do this loan,” but they want those asking for bank lending to deposit money. Two years ago, banks offered loans as much to bring in a new customer as they did on an expected return. The vast majority of the banks now are focused on transactions for operating existing assets where they can gain a new client. Because of the difficulty of bank financing, we’ve stepped in to try and fill that position. 

Benzinga: Several financial analysts predict a CRE crash later this year. What is your viewpoint regarding these predictions? 

Horn: A crash means that all of a sudden, things are going to change. The fact is they’ve already changed. Why there’s been a big change in valuation is that the cost of borrowing has gone up. Cap rates have already reflected that. Buyers still want to pay a certain price, and sellers are still thinking in the past of what prices used to be. That spread is shrinking, and while you’re seeing a change in the pricing of real estate, you’re not necessarily going to see a crash but a slow trickle.

Benzinga: What does this mean for those wanting financing going forward?

Horn: Don’t bet against the U.S. because the efficiencies of our financial systems are unmatched. A void may have been created because of a lack of bank financing available, but there’s also been a huge growth of capital that’s filled that niche.

Benzinga: How has the current tumult in CRE financing affected your performance and future planning at BridgeInvest?

Horn: For us, it has made us much more selective on the sites we get involved with and the projects we choose to build. With taxes and insurance costs going up, it’s made costs go up, and it’s been harder to find deals we can get done. It’s having a huge impact on our pipeline. But we’ve had an incredibly active year. The volume of deals we’ve been analyzing was over $10 billion in Q1, 128% more than the same time last year. There’s been a paradigm shift in how CRE is being financed.

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