Connect Los Angeles, which attracted 600 attendees to its one-day conference last week at the InterContinental Hotel in downtown Los Angeles, featured expert opinions from panelist throughout the day, including a panel on Financing With Debt, a panel discussion on the economy and “”Econ vs. the Street: A Look Ahead to a Choppy 2024” with Jim Costello of MSCI Real Assets and Richard Green of USC Lusk Center for Real Estate. And an Equity Update panel featuring moderator Bryan Shaffer of Slatt Capital; Adrian Berger, Cypress Equity Investments; Jake Loughridge, Belay Investment Group; Megan Pautler-Gutnikov, KCB Partners; and Jonathan San Antonio, CBRE Investment Management.
John Manning of Marcus & Millichap Capital Corporation, who moderated the Financing With Debt panel, was joined by Gary Bechtel of Red Oak Capital Holdings; Felix M. Gutnikov, Thorofare Capital; T.R. Hazelrigg IV, Avatar Financial Group; George Mitsanas, Gantry; and Brad Ross of Parkview Financial. This lively panel focused on debt and refinancing with observation about rescue capital and extensions.
The first question from Manning on how the gameplan is changing to rescue capital to difficult extensions, went to Mitsanas of Gantry. “The refinance of getting a lower rate–that game is over.” For Gutnikov of Thorofare, said he’s seeing borrowers having trouble with cash neutral refinances on value add multifamily acquisitions because of the significant increase in cap rates, coupled with the inability to find a buyer of the property who will pay more than what they paid in 2021 and 2022. Hazelrigg believes borrowers are waiting far too long to reach out, which is why Avatar has been proactive.
Ross of Parkview Financial, said, “We have a long list of borrowers who are going to pay us off tomorrow,” he said jokingly. “But we know the math doesn’t work. Anyone who kicked the can down the road, they went to a debt fund. They didn’t go to a bank, they didn’t sign recourse, they’re walking a tightrope. They’ll figure it out eventually, but it’s not going to be pretty.”
Overall, while all agree this will be an ongoing issue, it was also clear the that most of the borrowers are still committed to the projects.
On the economic front, Green wanted to start with the good news. “I think the American economy, since the great financial crisis, has done magnificently.” However, he’s worried about the banking sector. “Fundamentally they’re being shut down for the same reason. And it’s not commercial real estate. It is balance sheet mismatch.”
“The buyers are still going to be hesitant for a bit,” said Costello. “The notion by the first panel is that there might be lower interest rates. But even at that level, you still have a challenge. You still have a challenge in capital markets.”
Green summed it up with a comment reminiscent of keynote interviewee Ethan Penner: “This is a new world you’re going to have to adapt to. Not everybody is going to be thinking about that. And there’s ways to make money when markets turn around. And so just focus on the fact that there’s some new things you can deal with, new ways to make money by focusing on the fundamentals. There is opportunity there.”
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