By Daniel Siegel, president of Stonehill CRE
The market size in revenue of the commercial real estate industry is roughly $1.2 trillion. And as the largest asset class after stocks and bonds, the number of transactions in commercial real estate that occur annually is substantial. The overwhelming majority of those transactions will go smoothly or relatively smoothly and will be completed.
My team joined Stonehill, a division of Peachtree Group, in May 2022 and started Stonehill CRE. We have been together for years, roughly two stints before our arrival here. In that time, the four of us, me, Daniel Siegel, president of Stonehill CRE and Greg Koenig, Nisu Mehta and Taylor Pike, have completed hundreds of transactions worth north of $7 billion.
In our collective careers, we have seen borrowers navigate unstable markets, such as what we are experiencing today, in a variety of different ways. Here are a few suggestions we would give to borrowers trying to navigate a potentially difficult market, and a few that some might forget even in good times:
- Acknowledging your Situation: It has been a borrower’s market for several years now, and this is not one of them. Do not forsake the term sheet in your hand – the Fed has raised interest rates eight times in the past 14 months. Spending too much time on turns of a term sheet might leave you losing any spread concessions to increases in the benchmark or, even worse – lenders deciding to pull terms altogether. If you have an offer from someone you trust, you might want to take it.
- Grass Isn’t Always Greener: On existing projects, your current lender is most likely your best friend. A lender willing to give you an extension is gold in this market. Getting additional terms out of your current lender is likely the least costly option, even if it comes with fees and a rate increase – it likely still is significantly less costly than what the current market will give you. However, I hope that you have been a good borrower – up to date on deliverables, communicative about the status of your project, etc. – make no mistake, the bank is doing you a favor, don’t give credit committee a reason to say no.
- Try to Pay for your Overages and Carry Upfront: We pride ourselves on being lenders who want to be part of the solution when a deal has a budget bust or stabilization is taking longer than anticipated. However, I always encourage borrowers to size up their budget contingencies (i.e., 7% vs. 5%) or structure additional interest reserves. Yes, it will increase your initial capitalization, but your lender will pick up 60-70% of that cost in the loan funding. It may mean more work on the initial capital raise, but it’s usually less costly than going back to your lender and/or equity mid-project to get additional capital.
- Communication, Honesty and Transparency are Key: Lenders have access to data and information. They ultimately will discover the truth; it might as well come from you. This includes prior credit aberrations or issues and accurate property performance information. We have capital specifically for lending on special situations – there are a lot of deal-level risks that can be mitigated, but lack of trust with sponsorship is not one of them.
In uncertain times, hope for the best but prepare for the worst. Stonehill is an experienced capital partner who understands commercial real estate’s nuances. With funding options limited from traditional lenders, our team has the lending solutions, financial capacity and expertise to close complex transactions in today’s challenging capital market environment. Last year, Stonehill deployed $1.2 billion in real estate investments and expects to surpass that level in 2023. We are available to discuss your lending options that meet your business objectives.
Daniel Siegel serves as the president of Stonehill’s commercial real estate lending group overseeing the group’s expansion into commercial real estate lending. Before joining Stonehill, he was managing director at a large private equity firm and the head of high-yield investments. Prior to joining that firm, Siegel was vice president of acquisitions at Rialto Capital, overseeing the distressed loan acquisitions platform. During his tenure at Rialto, Siegel directly oversaw the acquisition of commercial real estate loans on both domestic and international opportunities. Additionally, he developed the firm’s small balance loan acquisition platform and led the company’s first European acquisition. Siegel has a bachelor’s degree in Finance from Tulane University. Contact Daniel at email@example.com