Creighton Bildstein - Principal, PlattPointe Capital

How private debt funds are a double edged sword

PlattPointe Capital BildsteinCreighton Bildstein - Is the commercial real estate market facing significant challenges due to rising interest rates and tightening lending standards?

“When you have free money, people do stupid things. When you have free money for 11 years, people do really stupid things.” So sayeth billionaire, Stan Druckenmiller. 

Now that interest rates are rising and there is no more free money and combined with tightening lending standards, it is becoming more difficult for developers to secure financing for new projects or to refinance existing loans. 

And with $500+ billion of CRE loans coming to maturity in the months to mid-2024, you’re going to see a lot of distress in the market. 

One solution to this problem is bridge loans, which are short-term loans designed to help developers cover financing gaps. However, these loans can be expensive and may not always provide the best terms for sponsors.  

Plus, in most cases they will wipe out existing limited partner equity. 

Preferred equity is another option, allowing developers to inject additional capital into a project in exchange for a share of the profits – sometimes substantially all of the profits that would have otherwise gone to the sponsor.

This can be a more attractive option for sponsors who are unable to secure traditional financing, because they at least retain something out of the deal while continuing to earn (albeit smaller) fees but it will likely result in the dilution (if not complete elimination) of existing limited partners' equity stakes. 

Rescue capital is another form of financing that can help distressed owners.

This type of capital typically comes in the form of equity or debt and is used to help stabilize a struggling project or to prevent foreclosure. 

Same here though for LP’s – rescue capital can be expensive for GP’s and will probably result in the dilution at best or complete elimination of LPs' equity stakes, at worst. 

My Real Estate Reality Show guest today, Creighton Bildstein, principal at PlattPointe Capital, shares why he believes the commercial real estate market is facing significant challenges due to rising interest rates and tightening lending standards.  

He predicts that opportunities for investors will arise as distressed assets become available for purchase, similar to previous market downturns. 

See why Creighton sees light on the horizon and learn how you can capitalize on the current drawdown in commercial real estate.

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