Private lenders, in pole position as high interest rates leave them as the sole option for many in the commercial real estate market (CRE), are turning more selective and worsening a liquidity gridlock in a sector facing trillions of dollars of maturing debt, Reuters reported. In recent months, banks looked to rework terms on maturing CRE debt to stave off loan defaults, but they required additional infusion of equity capital allowing private lenders an opportunity to provide rescue financing through mezzanine debt, preferred equity or fresh common equity, industry sources said. Initially those workouts were focused on the office sector, but now are spreading to multi-family, industrial and hotels. And those workouts are becoming mathematically untenable even for private lenders. This is happening as rental income, across sectors, is not keeping up with the increase in debt servicing costs, said several industry players. "Debt is available, but not in the same amount as before and it is also meaningfully more expensive. That leaves a few choices, and none of them are ideal," said Mike Comparato, president of Franklin BSP Realty Trust. Borrowing costs for the CRE market have risen more than income, a situation prompted by the steepest jump in interest rates in decades. Exacerbating factors include tighter lending standards after the March regional bank failures and falling office occupancies post-COVID.
