REAL ESTATE NEWS

The higher-for-longer interest rate environment has created challenges for many commercial real estate investors—but it is also creating an opportunity. Lenders are increasingly looking to sell notes off their books to redeploy the capital into more attractive loans at a higher interest rate. As a result, there is increased opportunity for real estate note sales for buyers across the spectrum, but particularly those looking for upside potential.

With a well-established auction business already in play, Matthews is in a unique position to connect interested buyers with note sale opportunities. Robert Anderson, VP of auction services at Matthews, will lead the new note sale platform, and he has identified a unique strategy to ensure independent “Main Street” CRE buyers have access to these opportunities that they normally wouldn’t see.

Targeting Small Balance Individual Sales
In a traditional note sale, the bank will pool together a large selection of loans with a high price tag. A pool of 25 loans, for example, may cost $100 million and target a large institutional buyer. However, as Anderson explains, not every loan will make it into the final pool. Those extra deals become one-off opportunities that an individual investor can access.

“There is a question about what to do with the more challenging and one-off middle-market deals,” explains Anderson. “We've put together a strategy with our partnership through Xchange.Loans to use their technology to help facilitate these middle-market loan sales. I think that helps us respond to lender demand as rates have stayed higher.”

Anderson expects the availability of note sales to continue to increase, fueled by high interest rates as well as the “wall of maturities,” and deceleration in some asset classes, like office. Even if interest rates fall later this year, it won’t be enough to offset the tremendous activity in the note sale space.

“We're anticipating a much larger uptick,” says Anderson, adding that it is good for the whole market. “Banks have a lot more control when they are selling notes off their books. Liquidity drives the market activity.”

Tech-Backed Platform Creates New Opportunities
The platform will be powered by technology to ensure efficient deal sourcing. Matthews will largely replicate its successful auction platform in pairing experienced brokerage staff, local experts and technology to help drive deal activity.

“It gives us greater certainty of execution and transactional efficiency,” says Anderson. Xchange.Loans, Matthews’ technology partner, is a sealed bid platform similar to an auction site. The program improves the process by giving lenders more control while also accessing a wider pool of buyers, which includes family offices, private regional groups and professional investors, as well as larger institutional players.

“This platform is the perfect blend,” says Anderson. “We do private capital real estate transactions very well, and we know those buyers want distressed opportunities. This is a way for us to provide that while also providing our sellers or lenders an enhanced alternative to sell middle-market note deals.” Call it a win-win.

For more insights and thought leadership from Matthews, click here.

Source: GlobeSt/ALM