CREFC Miami Takeaways

Days two and three of the CREFC Conference in Miami were active for the Ballard Spahr Team, with the highlight being our annual reception attended by more than 220 guests. In follow-up to our day one summary alert, we wanted to share some takeaways from the final two days of the Conference with our clients and friends.

The sessions were characterized by general optimism for a dynamic 2024 tempered by a dose of reality in the form of the clear challenges expected by many owners, lenders, servicers, and bondholders arising from a range of distressed transactions. In contrast to last year’s restricted market, in which many parties were not doing deals unless they had to, 2024 is expected to present more deal-making opportunities for almost all market participants, despite likely continued market constrictions. That being said, the timing and degree of improving market factors remain significant variables, as do the timing and extent of the likely clearing of what may be a significant number of distressed legacy transactions.

As to distressed assets, the ability to reliably value debt and equity investments will likely remain fluid, in particular for office building transactions, pending sufficient indicative transactions. Appraisals and broker opinions of value will be key inputs for many lenders and servicers in their decision-making processes. Meanwhile, in a number of situations, continued valuation uncertainty and potentially extreme value declines will likely have a dampening effect on potential resolutions and related investment/funding decisions including the willingness or ability of investors and lenders to make otherwise necessary investments/advances (e.g., nonrecoverability determinations). Notwithstanding these constraints, due consideration will need to be given to the potential effect on a property’s reputation and desirability in the marketplace and, ultimately, on the goal of maximizing realized value and recovery.

2024 appears to be setting up well for the alternative lenders/private credit providers based on the fact that many traditional capital sources are expected to be constrained for at least part of 2024, while pricing is expected to be extremely attractive on a risk-adjusted basis. As a result, there is more available capital on a relative basis for preferred equity and other subordinate positions and it can be quite flexible to work with borrowers and other lenders to structure a workable deal. It was noted that a stable and well-functioning senior debt market in 2024 is a likely necessity for opportunities to be maximized.

While high-yield lenders expressed expectations to do predominately floating rates in 2024, there may be some appetite for fixed-rate debt in 2024 in the right situations. Lenders appear interested in fixed-rate debt if they are able to lock in higher rates with at least four years of call protection. Meanwhile, borrowers are generally hopeful that rates will be declining and are looking for how (and when) best to take advantage of such a decline.

From a legislative and regulatory standpoint, attendees noted a current scramble to finalize rules before June 2024, since anything passed after that could be subject to congressional debate pursuant to the Congressional Review Act if there were to be a change in administration. Of note, the Securities and Exchange Commission’s climate disclosure proposal has not yet been finalized. There is intense controversy surrounding requirements to disclose emissions data and how climate events affect financial performance. Some question whether the SEC has jurisdiction, and others are concerned how smaller companies would be able to comply.

With more than 85 lawyers in our Real Estate Finance Group throughout the United States, and a national Distressed Assets and Opportunities Group, Ballard Spahr offers nationally recognized skill and experience, local market knowledge, and a comprehensive understanding of the issues that drive transactions and markets. Our team is one of the most active in the country with extensive experience in developing, structuring, negotiating, servicing, restructuring, and enforcing a wide variety of complex, real estate finance transactions on an individual, portfolio, and programmatic basis.

In addition, Our Distressed Office Buildings Team brings together real estate, finance, leasing, zoning, construction, condominium, enforcement, bankruptcy, and tax lawyers to analyze the most complex and demanding of situations and structures. The team recently hosted a webinar, “Distressed Office Buildings: Considerations and Strategies,” with an accompanying white paper, as well as a podcast entitled, “Distressed Office Buildings: A Look at Workout and Enforcement.”