Lenders 2023: Stretching Time
Loan extensions are often helpful in uncertain times, but lenders have their limits.
The Rolling Stones once declared that “Time is on my side, yes it is.” And while that may be true for the remaining members of the Stones — now touring in tight pants at an average age of 76 — others, like the dinosaurs and owners of underperforming commercial real estate, aren’t quite so lucky.
The asteroid that took out our massive reptilian friends 66 million years ago came to the CRE industry in a very different form, fragmented into several meteorites: a global pandemic, a drastic change in work habits that led to unprecedented vacancies and the need for a Plan B, a reduced lending playing field that included bank failures, and the highest interest rate environment in 22 years.
As the industry continues to find its way through the current jungle of volatility, its journey is often peppered with the ominous thud of footsteps — a looming loan maturity date getting ever closer — followed by a shaking of the ground below, and a distant yet deafening roar.
But, with the lending playing field thinner than a herd of brachiosauruses after a T-Rex lunch buffet, and the cost of new debt higher than the insurance costs of running an island with man-eating dinosaurs (and one, lone I.T. guy with a less-than-ideal work ethic on the payroll), some borrowers face a bit of a sticky wicket today.
The owners of Class B office buildings are perhaps at the bottom of the food chain when it comes to securing a refinance. But even those higher in the chain, with more desirable assets, are often in need of just a little more time to get off the island in one piece, limbs intact.
So, with refinances harder than ever to come by and lenders calling the shots, we asked our lenders if they’re willing to throw their borrowers a bone (or perhaps a bloodied goat’s leg) when an extension is requested.
BGO’s Abbe Franchot Borok described her firm as receptive to the requests. BGO “strives to be good partners to our borrowers” while appreciating “some of the challenges in the current market,” she said. Ultimately, “if it’s a good asset, good market, good borrower that is willing to support the asset — we are confident we can find a solution that works for all parties.”
Acore Capital’s Tony Fineman and Brookfield’s Nailah Flake concurred that every situation is unique, with Fineman saying Acore typically (and fairly) requires “some kind of recommitment from our borrowers/sponsors to consider extending a loan that is otherwise not eligible for extension.”
But borrowers looking to buy some extra time should be prepared for a li’l give and take. After all — just as that T-Rex doesn’t allow a raptor to escape without a triceratops being nearby — as Affinius Capital’s Mike Lavipour said, “We’re not doing free extensions for sport.”
“When you have well-capitalized borrowers who are willing and able to contribute more capital, both parties can bring something to the table,” Blackstone’s Jonathan Pollack said.
For example, KKR’s Joel Traut said his firm’s granting of loan extensions typically occurs when sponsors invest additional capital in the assets or reduce debt.
So, when it comes to approaching those holding all the cards and asking for some mercy, the moral of the story is: Have something to offer your lender, make no sudden moves, and you might just survive to tell the tale.