The $1.4 Trillion CRE Financing Dilemma

The Commercial Real Estate (CRE) sector is undergoing significant changes. The Federal Reserve has raised interest rates at the fastest pace since 1981, making borrowing more costly.

Many developers who borrowed money earlier at cheaper rates are now struggling to repay.
By 2025, there's a massive $1.4 trillion debt due.

Small banks, one of the primary source of CRE & multi-family real estate financing are now grappling with decreasing deposits. During periods of low interest rates, banks increasingly depended on inexpensive retail deposits to fund loans, as customers had limited motivation to transfer their money elsewhere.

Banking Liquidity & Refinancing

Community and Regional banks are currently holding $1.9 trillion of CRE loans—twice as much as large banks.

However, as borrowers look to refinance, we believe these banks face challenges, due to a reduced deposit base compared to previous years and declining underlying real estate asset values.

Banks prefer to maintain liquid assets, not manage tenants or tie up capital. This situation results in a capital imbalance. Consequently, smaller banks are inclined to sell these assets quickly, often at conservative values, to prevent losses and capital tie up.

This paves the way for astute buyers to secure valuable CRE deals from these motivated ‘non-economic’ sellers.

Smart Managers Unloading CRE

Astute real estate asset managers, such as Brookfield, are strategically divesting underperforming office properties in response to low return-to-office rates and escalating debt servicing expenses.

This strategic move enables them to reallocate capital towards more promising opportunities. Notably, these loans are structured as "non-recourse," safeguarding the asset manager's creditworthiness even in the event of loan default.

Conversely, multifamily apartment owners are currently maintaining a steadfast stance, insisting on unrealistic pricing expectations. According to MSCI, the bid-ask spread between buyers and sellers has widened to 11%, marking the highest level since 2012. We anticipate that as these loans mature, sellers will inevitably face pressure to align their pricing with market realities, necessitating divestment.
‍

Capital Imbalance & Distress

Wall Street is getting ready to scoop up the CRE deals on the cheap (source:WSJ). The U.S. commercial property prices have already fallen 16% since their peaks in March 2022.

We believe that as the interest rates continue being "higher for longer" and and as CRE loans reach their maturity dates, we will witness a notable increase in distressed properties and foreclosures, a trend that is already emerging.

The Window of Opportunity

The number of properties that slip into distress will be key for bargain-hunters. Although the current landscape differs from the 2008 crisis, it still offers favorable risk-adjusted returns.

Our perspective is that the most promising opportunities lie outside over-saturated commercial centers like New York City and San Francisco, which are dominated by large private equity firms such as Blackstone & KKR.

We advocate concentrating on deals ranging from $10 million to $25 million in secondary markets like Jacksonville and Dallas. Realizing this potential requires thorough on-ground research, expert sourcing and banking relationships, and rigorous due diligence on both managers and funds.

The Lumida Advantage

Trusted Fiduciary

Lumida operates as a fiduciary, prioritizing our clients' interests above our own. We are not commission-based brokers; instead, we focus on understanding each client's unique situation to craft tailored investment strategies that align with their objectives.

Broadened Participation

Access to distressed commercial real estate opportunities is often limited to the ultra-wealthy or those committing over $500,000. Through our special purpose vehicle, we allow qualified clients to invest at lower ticket sizes, making opportunities that were once exclusive to the ultra-wealthy accessible to a broader investor base.

Manager Selection

Lumida excels in identifying investment themes and sourcing adept managers to leverage them. Our rigorous diligence process ensures managers have deep expertise, a proven success record, and a commitment to excellence. Qualified investors are welcome to access Lumida's comprehensive diligence reports.

Qualified Clients can click below to learn more:

get in touch

Lumida's opinions and perspectives have been featured in:

OUR TEAM

Ram Ahluwalia, CFA

CEO, Co-Founder Lumida Wealth

Ram, has 20+ years of experience in management and investments. He founded Cross River Crypto, was CEO of PeerIQ (acquired by Cross River Bank), and held executive roles at Bank of America and Merrill Lynch. Ram is a CFA Charterholder with a BA in Philosophy and Economics from Columbia College.

Justin Guilder

COO, Co-Founder Lumida Wealth

Justin, has 18+ years of experience in corporate operations, finance, legal, compliance, and investments. He co-founded Reserve Trust, served as Managing Director at PennAve One, and practiced law at Dentons and Kilpatrick Townsend. Justin holds a JD from The George Washington University Law School and a BA in Business Administration from the University of Florida.

DISCLAIMER

Lumida Wealth Management LLC (‘Lumida”) is located in New York, NY, and is an SEC registered investment adviser. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability. Lumida only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. Any direct communication by Lumida with a prospective client will be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.

General: Additional information is available upon request. The information in this material has been obtained from sources believed to be reliable. While all reasonable care has been taken to ensure that the facts stated in this material are accurate and that the forecasts, opinions and expectations contained herein are fair and reasonable, Lumida, Inc. and Lumida Wealth Management LLC (collectively Lumida) make no representations or warranties whatsoever thecompleteness or accuracy of the material provided, except with respect to any disclosures relative to Lumida.
‍

Accordingly, no reliance should be placed on the accuracy, fairness or completeness of the information contained in this material. Any data discrepancies in this material could be the result of different calculations and/or adjustments. Lumida accepts no liability whatsoever for any loss arising from any use of this material or its contents, and neither Lumida nor any of its respective directors, officers or employees, shall be in any way responsible for the contents hereof, apart from the liabilities and responsibilities that may be imposed on them by the relevant regulatory authority in the jurisdiction in question, or the regulatory regime thereunder. Opinions,forecasts or projections contained in this material represent Lumida’s current opinions or judgment as of the day of the material only and are therefore subject to change without notice. Periodic updates may be provided on companies/industries based on company-specific developments or announcements, market conditions or any other publicly available information. There can be no assurance that future results or events will be consistent with any such opinions, forecasts or projections, which represent only one possible outcome. Furthermore, such opinions, forecasts or projections are subject to certain risks, uncertainties and assumptions that have not been verified, and future actual results or events could differ materially. The value of, or income from, any investments referred to in this material may fluctuate and/orbe affected by changes in exchange rates. All pricing is indicative as of the close of market for the securities discussed, unless otherwise stated. Past performance is not indicative of future results. Accordingly, investors may receive back less than originally invested. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipients of this material must make their own independent decisions regarding any securities or financial instruments mentioned herein and should seek advice from such independent financial, legal, tax or other adviser as they deem necessary. Lumida may trade as a principal on the basis of its views and research, and it may also engage in transactions for its own account or for its clients’ accounts in a manner inconsistent with the views taken in this material, and Lumida is under no obligation to ensure that such other communication is brought to the attention of any recipient of this material. Others within Lumida may take views that are inconsistent with those taken in this material. Employees of Lumida not involved in the preparation of this material may have investments in the financial instruments or securities (or derivatives of such financial instruments or securities) mentioned in this material and may trade them in ways different from those discussed in this material. This material is not an advertisement for or marketing of any issuer, its products or services, or its securities in any jurisdiction.Lumida Wealth Management LLC (‘Lumida”) is an SEC registered investment adviser. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability.

Lumida's website (referred to herein as the "Website") is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links.

Accordingly, the publication of the Website on the Internet should not be construed by any client and/or prospective client Lumida’s solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet. Any subsequent, direct communication by Lumida with a prospective client will be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.Learn more about the company and the team behind it.

Lumida Wealth Management LLC (‘Lumida”) is an SEC registered investment adviser. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability. Lumida's website (referred to herein as the "Website") is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of the Website on the Internet should not be construed by any client and/or prospective client Lumida’s solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet. Any subsequent, direct communication by Lumida with a prospective client will be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.

cookie policy

FORM ADV 2

FORM CRS

Commercial Real Estate: Navigating The Market Squeeze To Success