A.J. Sfarra

Describe the past 12 months in one word, then tell us the key lending opportunities you and your team have uncovered. 

Improving. We have seen increased transaction activity primarily in the multifamily, industrial and data center sectors and, to a lesser degree, other sectors. The strength of the CMBS market has continued to drive refinance activity on bank balance sheets, allowing banks to be more active in committing capital to new transactions. Along with rate cuts and an enormous amount of dry powder on the sidelines, this should continue to drive transaction volumes as investors develop conviction that financing is available. Additionally, given the pending Basel rules and a focus on enhanced capital requirements for banks, we believe there will be more repurchase facility/loan-on-loan opportunities for banks to transact in.

Are rate cuts the silver bullet the industry has been waiting for to solve all woes?  

There is no such thing as a “silver bullet” in CRE. Borrowers are looking for consistency of interest rates and the impact of the first 50 basis point rate cut is meaningful. We are seeing an improvement in REIT stocks and expect increased transaction volume and loan demand to follow. Banks have been actively managing the risks in their loan books, and we expect that the psyche of borrowers will continue to improve, allowing for more capital to come into distressed situations and a general improvement in loan performance metrics.

What has surprised you most in 2024’s CMBS issuance?

Two things surprised me this year. First, non-agency CMBS issuance volume close to $100 billion and on pace to be the second-highest issuance year since 2010. The second was the $3.5 billion Rockefeller CMBS SASB deal, which was co-originated by Bank of America and Wells Fargo! 

How does distress continue to play out in 2025, and how can lenders best protect themselves? 

Even with forecasted rate cuts, distress in certain asset classes such as office and pockets of multifamily will persist in 2025. Proactive and intense asset management allows lenders to look around corners and uncover issues that can impact occupancy and cash flow. Early action by lenders through paydowns, modifications and extensions will reduce risk of loss. We believe the big banks have a handle on their distressed assets, but lenders will continue to work with borrowers to trade capital for time, or possibly to increase sales of distressed loans. 

Tougher market: GFC or these past four years?  

The violent GFC market crash and subsequent environment was a very difficult period. However, the rapid rise in interest rates over the last few years has meaningfully impacted CRE by choking off transaction and lending activity, and crushing many borrowers’ ability to refinance. It has been an environment that many CRE investors and lenders have never experienced.  

Are you still as enthusiastic about multifamily as you were three years ago?

Yes. The combination of a rate-cutting cycle, a lack of residential affordability, and the tail end of current supply delivery coupled with much less construction starts should bode well for U.S. multifamily in 2026 and beyond.

Tell us about a deal you’re especially proud of this past year?

Blackstone completed the acquisition of AIR Communities in June 2024, their largest multifamily investment ever, in a transaction valued at approximately $10 billion. Wells Fargo served as a financial adviser on the acquisition and served as administrative agent on a $2.65 billion syndicated term loan, to help capitalize the take-private. Additionally, we led two highly successful CMBS offerings (one for $2.95 billion and a second for $1.05 billion) for total issuance of $4 billion to provide term financing for the acquisition. The BX 2024-AIRC transaction was groundbreaking for the CMBS market, as it represented the largest U.S. multifamily SASB of all time and the first SASB to upsize with additional assets during the marketing process. The transactions represented the only take-private acquisition financed via the CMBS market in 2024 so far. 

Lightning Round:

AI: Helpful or fad?

Helpful. 

Will interest rates be below or above 4 percent on July 1, 2025?

Below (but not much lower than today, in my opinion). 

Who will win the presidential election?

Let’s stick with lending…

Pick a movie remake: “Beetlejuice” or “Twisters”?

“Beetlejuice” (though it’s hard to top a classic).

Modify or foreclose?

Modify.

Data centers or industrial?

Data centers.

Class B office: Tear down and start over, or convert?

Tear down and start over (if you can).