Visualizing the shift in CRE lending

Daily Data: Some charts on a tectonic shift

In today’s dispatch:

• visualizing the tectonic shift in CRE lending conditions

• it’s not just office that’s a problem

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Visualizing the CRE Lending Shift

To get a sense of what CRE lenders and operators are currently up against, Random Walk calls attention to the wonderful data viz work that Maverick Real Estate Partners (a distressed fund) is producing.

The tl;dr is pretty straightforward.

• There was a lot of cheap lending when property values were high and lending requirements were low.

• Now lending is more expensive, and property values are lower, and lending requirements are higher.

• Those old loans appear pretty regrettable with the benefit of hindsight, but unfortunately, loans made under the old regime don’t just go away. They still need to be repaid, either with new (more expensive and onerous) loans, or by selling the loans (or the collateral) at a discount.

Someone(s) will lose, that much we know, the only question is who and how much (and whether the losses stay right there).

For now, everyone has been mostly waiting rather than trying to figure it out, but eventually, they will have to figure it out.

Anyway, on to the charts, which are specific to NY, but the general idea remains the same.

LTVs moved lower

First, an illustration of how underwriting standards have changed, specifically with respect to the value of the underlying collateral:

LTVs peaked in the mid-to-high 70s, but are now high-50s to high-60s

During Pandemania, LTVs peaked in the mid-to-high 70s, but now lenders are only willing to lend at high-50s to high-60s.

So, instead of a $77 loan against an $100 asset, now you only get a ~$65 loan against an $100 asset. The rest you (or your investors) have to kick in.

Asset values are down

Second, asset values have drifted downwards (for most, but not all asset classes):