As published in PREA Quarterly, Summer 2023
The rapid rise in interest rates since the beginning of 2022 has exposed fault lines in banking, private equity, and commercial real estate business models that were predicated on low debt rates. For many real estate investors, the days of low-cost, readily available property financing are gone. Today, borrowers face significantly higher interest rates, stricter underwriting standards, and potential debt availability issues. The public-private market divergence in real estate valuations has further complicated the mortgage underwriting process, as private property valuations have been slow to adjust to market realities. As a result, many private market real estate investors seeking to refinance their properties find themselves in a pickle. Some face the prospects of negative leverage; others find their current loans cannot be refinanced at par.
To read the full story, visit PREA Quarterly (pdf).