Crittenden CRE Finance Conference Highlights: Key Takeaways and Insights – Part 1 of 2

The author attended the recent Crittenden commercial real estate finance conference in Miami Beach which brought together industry experts and professionals, providing valuable insights into the current trends and challenges in the market.
Here's Part 1 of 2 with a comprehensive summary of the top nine points discussed during the event:

1. Non-Bank Lenders are Stepping Up:

    • Niches make riches. Despite overwhelming negativity in the mainstream media of a finance desert, non-regulated, niche lenders have witnessed robust performance and growth. 
    • While conventional lenders such as banks and credit unions have slowed their pace of lending, non-bank lenders have filled the gap.
    • Non-Bank lenders are providing bridge loans, bridge-to-bridge loans, rescue loans, renovation loans, and ground-up construction loans. 
    • Un-Conventional lenders are seeing an unprecedented increase in deal flow, some seeing as many as 100 submissions a day.
    • The only way to get to the “top of the pile” with a non-bank lender is having a repeat relationship with capital providers, or through a financial intermediary with a reputation for underwriting, evaluating, and pre-screening deals for lenders as opposed to “throwing it against the wall and seeing what sticks”. 

2. Sponsorship matters:

    • A sponsor needs to be able to more than fog a mirror and pass a background check that they have not been recently released from prison for financial-related crimes. 
    • Sponsors need to show strong conviction in their deals by writing significant equity checks. 
    • Sponsors that rely too heavily on syndication and OPM (Other People’s Money) will find it difficult to obtain capital. 
    • Sponsors need to show strong net worth, liquidity, and global cash flow.
    • Lenders are using sponsor conviction to screen opportunities. If sponsors are not writing big enough checks and are relying too much on outside, passive investors, lenders are taking a pass.

3. Office Market Transformation: Hybrid Work Model:

    • Covid 19 changes everything in the workplace.
    • Traditional office workers have learned how to work and be productive from home.
    • The traditional office market with workers spending 5 days a week in drab, nondescript offices, well known to the older generations, is undergoing significant changes.
    • The new generation of office workers desire more efficient and flexible workspace solutions.
    • Companies have embraced a hybrid work model with employees able to work from home certain days and mandating employees spending two or three days a week in the office, emphasizing the importance of maintaining physical office spaces even in a hybrid work environment.
    • Tenant needs have evolved, a tenant that previously needed 50,000 sq ft has been able to reduce their footprint to 20,000 sq ft.
    • Employees don’t want to come to work in a Class B&C office. If they are going to commute to the office, it needs to be attractive and have a sense of place. Highly amenitized Class A office space is staying leased, class B&C office space is struggling. 
    • Many lenders have stopped lending on office space, unless it is medical office space near a market-leading hospital. 

4. Reset in Basis:

    • $1.7 Trillion of commercial real estate loans mature over the next three years.
    • The market is going to go through a cleansing process as weak handed sponsors with too much leverage get flushed. 
    • Professional investors and developers, not hobbyists, will attract capital.
    • Transactions financed based on historically low interest rates and needing their business plan to go absolutely perfectly right in order to exit their bridge loans are now needing to bring large equity checks to the table in order to retire their debt.
    • Sponsors unwilling or unable to write large checks will hand back the keys creating opportunities for the next round of investors. 
    • Lenders are eager to lend to multi-generational family companies that have a long-term ownership outlook. These investors show a willingness to write big equity checks to fix the problems previous sponsors could not, and be landed at an attractive basis.

5. Office to Residential Conversions:

    • Class B&C office buildings are losing tenants at an alarming rate.
    • Office buildings in walkable Central Business Districts are being converted to residential uses.  Recently it was announced that the 121-year old legendary triangularly shaped pioneering skyscraper, The Flatiron Building in NYC, is being converted from office to 40 residential condominium units, much to the detriment of John Wick.
    • Suburban office buildings with large parking fields are being demolished and repurposed as housing-centric developments. The new paradigm is walkable live-work-play communities.
    • Florida has recently enacted the “Live Local Act” to accelerate the redevelopment of commercially zoned properties to multifamily use. Provided developers set aside a modest number of units for affordable housing, a costly and lengthy zoning/land use change is not required.

To be continued….

Author: David Repka

About the Author:
David Repka is the Co-Founder of Bison Financial Group in St. Petersburg, FL.
Bison arranges debt and equity financing for commercial real estate investors and developers.
Bison has relationships with investors across the risk spectrum funding acquisitions, renovations, and new construction.

Click to learn more about:
Bison Financial Group