Josh Zegen

Is it better to be a lender or borrower today? 

There is no question the real estate credit markets have been competitive, but the answer is nuanced. Across a broadly defined credit market, including senior secured, subordinate and stretch senior, it comes down to where in the capital stack you can generate the most attractive risk-adjusted returns. 

Over the last 12 months, lenders have stretched on basis and rate for the best borrowers and locations. In some cases that made equity the more compelling value proposition, and in others credit was the better opportunity. 

Looking into 2027, I believe credit will be more compelling, as uncertainty around interest rates, asset values, and broader market conditions creates additional risk for equity investors.

If we can generate low- to mid-teen returns through prudently leveraged senior loans while maintaining meaningful downside protection, credit offers a superior risk-adjusted opportunity in today’s market.

Has the can been kicked fully down the road when it comes to loan extensions, or is there more leg action to come? 

The can has been kicked a long way, but not all the way, and there is less runway left than the market assumes. Lenders will keep extending where there is a credible path to stabilization, but increasingly only with paydowns, reserves or replacement rate caps that many sponsors can’t fund. 

At the same time, the cushions behind extend-and-pretend are wearing away as extension options expire and banks face pressure to recognize losses. How much more extension we see will vary deal by deal. It depends on the enforcement jurisdiction, whether the sponsor is still adding value or the lender can resolve the loan without sponsor cooperation, and how the lender is capitalized. 

Warehouse and single-asset leverage limit patience, while longer-dated, less levered capital can wait. That pressure will force borrowers to act. The result is an attractive opportunity to provide senior capital at a new basis that reflects today’s market, whether through recapitalizations or by buying and restructuring loans from banks and funds that can no longer wait.

Which property sector is most attractive from a lending perspective today, and which are you most cautious about? 

Housing is the most attractive sector for us, including multifamily, affordable and workforce housing, and for-sale residential. We believe there is still a housing shortage in many parts of the country that supports durable demand. New construction starts have fallen sharply, and the sector offers multiple exit paths. 

In for-sale, we prefer luxury product in supply-constrained markets, where buyers are less rate-sensitive, over commodity product that depends on mortgage affordability. 

We are most cautious about traditional office, where obsolescence, weak tenant demand and the lack of a clear valuation floor make repayment hard to underwrite. 

Across both housing and office, we are also mindful of AI’s potential impact on employment and tenant demand, particularly for back-office users and in markets concentrated in the most exposed job sectors. In every sector, basis, sponsor quality and a clear exit matter more than property type.

What’s your competitive edge in deals today, and who are you competing against most often (banks or non-banks)? 

What truly differentiates Madison is the breadth of our lending platform, the range of financing solutions we provide and our 22 years of experience navigating real estate cycles.

We offer both bank-like and non-bank-like products, which allows us to compete across a broad spectrum of the market, from traditional senior mortgages and construction financing to structured credit and financing for other non-bank real estate lenders. That breadth enables us to serve both real estate owners and the lenders financing them. 

Equally important, our cycle-tested experience gives us the perspective to anticipate challenges and recognize opportunities ahead of the broader market. Combined with more than two decades of relationships with borrowers, brokers, and banks, that positions us to identify and act on those opportunities at scale.

Do you expect more or fewer loan sales in the year ahead, and why?

I expect more loan sales over the next 12 months, driven by investor pressure for liquidity and a banking system better positioned to recognize losses and move beyond legacy loans.

Many lenders extended loans expecting lower rates to lift valuations and improve refinancing prospects. That recovery has taken longer than expected, and, with rates moving higher, it may be heading in the opposite direction. As a result, investors are increasingly pressing managers to return capital and realize investments. Meanwhile, larger, diversified banks have worked through a challenging real estate cycle and now have the capacity to absorb losses and reduce exposure to legacy loans.

Improving liquidity and price discovery are also narrowing the gap between buyers and sellers. Together, these forces should accelerate loan sales, creating opportunities for lenders with the capital and flexibility to transact.

Lightning Round:

Super Bowl or World Cup? Super Bowl.

Best vacation you ever took? Amalfi Coast for my 50th birthday.

Conversions: “Keep ’em comin’ ” or “Sooo 2020 (scoff)”? Keep ’em comin’.

Sun Belt multifamily or Boston life sciences? Sun Belt multifamily.

Friend, marry, kill: Office, multifamily, data centers Friend office, marry multifamily, kill data centers.

Book reader or phone scroller/email checker before bed? Phone scroller/email checker.

Describe your portfolio in one word? Seasoned.

Fitness activity of choice? Tennis.