How private debt funds are a double edged sword

Описание: “When you have free money, people do stupid things. When you have free money for 11 years, people do really stupid things.” So sayeth billionaire, Stan Druckenmiller.

Now that interest rates are rising and there is no more free money and combined with tightening lending standards, it is becoming more difficult for developers to secure financing for new projects or to refinance existing loans.

And with $500+ billion of CRE loans coming to maturity in the months to mid-2024, you’re going to see a lot of distress in the market.

One solution to this problem is bridge loans, which are short-term loans designed to help developers cover financing gaps. However, these loans can be expensive and may not always provide the best terms for sponsors.

Plus, in most cases they will wipe out existing limited partner equity.

Preferred equity is another option, allowing developers to inject additional capital into a project in exchange for a share of the profits – sometimes substantially all of the profits that would have otherwise gone to the sponsor.

This can be a more attractive option for sponsors who are unable to secure traditional financing, because they at least retain something out of the deal while continuing to earn (albeit smaller) fees but it will likely result in the dilution (if not complete elimination) of existing limited partners' equity stakes.

Rescue capital is another form of financing that can help distressed owners.

This type of capital typically comes in the form of equity or debt and is used to help stabilize a struggling project or to prevent foreclosure.

Same here though for LP’s – rescue capital can be expensive for GP’s and will probably result in the dilution at best or complete elimination of LPs' equity stakes, at worst.

My Real Estate Reality Show guest today, Creighton Bildstein, principal at PlattPointe Capital, shares why he believes the commercial real estate market is facing significant challenges due to rising interest rates and tightening lending standards.

He predicts that opportunities for investors will arise as distressed assets become available for purchase, similar to previous market downturns.

See why Creighton sees light on the horizon and learn how you can capitalize on the current drawdown in commercial real estate.

***
At GowerCrowd, we take a realistic view of commercial real estate investing, providing pragmatic insights for passive investors who are looking for sponsors they can trust and discounted opportunities they can invest in.

You’ll find no quick fixes or easy money ideas here, no sales pitches, big egos or hype.

Real estate investing for passive (accredited) investors is turning messy with vast swathes of loan maturities approaching which is going to send many sponsors into default causing their investors to lose capital.

While this is nothing to be celebrated, it will also bring in a period of wealth transfer and opportunistic investments.

We’re here to guide you by looking at the harsh reality of real estate investing, examining the risks and the rewards in conversations with some of the world’s top experts so you can make informed decisions.

You’ll learn how to build your wealth while protecting your capital investing as a limited partner in commercial real estate investments, even and especially during an economic downturn.

Is the commercial real estate world on the cusp of a major correction? Is it 2007 or 1989 all over again? Will passive investors (limited partners) who have invested in syndications (through crowdfunding or otherwise) see losses they had not predicted? How can you access discounted real estate opportunities this time around that were only available to a select few during prior downturns?

Let us help you prepare your real estate portfolio no matter what the future holds, whether it be business as usual for real estate investors or a period of wealth transfer where those less prudent during the good times, lose their assets to those who have sat on the sidelines, patiently waiting for a correction.

Be among the first to know of discounted investment opportunities as the market cycle plays out by subscribing to the GowerCrowd newsletter at https://gowercrowd.com/subscribe
Subscribe to our YouTube channel: ⁠⁠⁠ https://www.youtube.com/gowercrowd?su...

Follow Adam on Twitter: ⁠⁠⁠   / gowercrowd  

Join the conversation on LinkedIn:   / gowercrowd  

Follow us on Facebook: ⁠⁠⁠   / gowercrowd  

***

IMPORTANT NOTICE: This audio/video content is for informational purposes only and should not be regarded as a recommendation, an offer to sell, or a solicitation of an offer to buy any security. Any investment information contained herein is strictly for educational purposes and GowerCrowd makes no representations or warranties as to the accuracy of such information and accepts no liability therefor.