Greystone Commercial Mortgage Capital, a subsidiary of finance company CRE Greystone, and Inlet Real Estate Capital have formed a joint venture “to provide short-term floating rate capital solutions to owners of commercial real estate,” a press release notes. .
The firm, Greystone Inlet Real Estate Capital, targets CRE owners who currently have distressed properties or are facing potential issues. From what a lot of CRE told GlobeSt.com recently, that could include a lot of people and businesses gearing up for their own Black Friday.
Rising inflation, with the Federal Reserve raising its base interest rates which are driving up financing costs sharply, could leave many people whose business plans depended on low rates and a high leverage with a difficult immediate future.
Until early 2022, it seemed that worries about distress were overblown. Bailout funds from Congress and accommodative monetary policy from the Fed have largely kept apartment and commercial tenants afloat and in place. But inflation started to rise and what officials said was only transitory and stuck around for so long that dismissing it as a passing phase was no longer viable.
With higher rates, lenders have become wary, who not only charge more, but are no longer willing to exert significant leverage.
As CRE owners face maturing properties for refinancing at a much higher rate than before, possibly with demand for a lower LTV ratio, and therefore more capital, either the extra money could not be available, or the business model might be non-viable at the higher rate. Either way, the owner will have to sell or find some sort of bridge financing to get things going in the hopes that rates will come down within a few years.
There are two ways for investors or traders to capitalize on struggling stocks. If they are widespread enough, the values go down. One option then is to buy at a low price, opening up space to perhaps carry out some renovation work, but above all guaranteeing the financial flexibility necessary to make profitable exploitation possible.
Talk about distress, and that’s a common pattern of approaching the subject: buying properties at a discount.
What Greystone Inlet Real Estate Capital envisions is the second model, which is not about buying properties, but about making bridge capital available across multiple property types, including multi-family, industrial, office, and mixed-use.
“The joint venture will offer flexible structured capital solutions such as first mortgages, mezzanine loans, preferred equity, common equity investments or a hybrid of multiple structures,” the statement said. “Once stabilized, the strategic joint venture between Greystone and Inlet will provide sponsors with direct access to long-term fixed rate financing through Greystone’s other lending platforms such as CMBS and agency financing. The joint venture will target transactions ranging in size from $5 million to $50 million in assets located across the United States.