Top Takeaways: CREFC Conference New York

The CRE Finance Council held its annual conference on June 13^th and 14^th at the Marriott Marquis in New York, New York. The conference was heavily attended by lenders and capital market participants in the securitized lending markets (agency, CMBS, and CRE CLO). While everyone was excited to get back to meeting in person, the mood and tone of the conference were negatively influenced by the current economic conditions.

• Securitized lenders don’t like volatility and market uncertainty. Expect spreads to remain elevated, and participants will stay on the sidelines until more certainty returns to the markets.
• Balance sheet lenders (banks and life companies) will be more competitive in current market conditions. They should pick up market share with their certainty of execution and very competitive long-term fixed-rate product.
• Most participants believe this pricing uncertainty will settle down by yearend once the Fed issues direction over the summer, capital markets volatility settles down, and external factors such as the Ukraine war and supply chain issues have a clearer resolution.
• Lenders return to cash flow underwriting with loan sizing being DSCR driven—debt yield is out the window. Many borrowers will be faced with negative leverage.
• Deal flow will be down significantly for the 2^nd half of the year and may clear off many of the weaker lenders.
• Many lenders expect floating rate debt to be preferred because borrowers want prepay flexibility.
• Lenders are worried about underwriting exit caps, and there is a strong belief that cap rates will rise from what was seen in 2021.
• Lenders believe in the multifamily and industrial sectors because of their strong secular demand drivers. Most believe the pace of rent growth will slow in these two sectors and will model this moderated growth in their projections. Self-storage and data centers were also specialty sectors thought to have positive demand stories.
• The impact of hybrid work will continue to affect the office market. Most lenders will stay clear of commodity office unless it has conservative underwriting.
• Agency lenders will remain focused on mission-driven goals and expect to be more competitive in the 4^th quarter as they seek to fund their annual allocations.
• 2021 was the golden year for debt funds, and 2022 will be different as they reduce leverage, increase spreads, and add more structure.
• The medium-term outlook was positive as the availability of capital is strong, with mortgage REITs, banks, and life companies sitting on significant capital.