Scotsman Guide Feature: The Fidelity Bancorp Difference
Marketplace Opportunity
Investors and lenders confront a substantial opportunity in 2024 from $930 billion of maturing commercial real estate debt necessitating refinancing at higher rates and lower loan-to-value ratios. The deferral of approximately $300 billion of maturing debt from 2023 to 2024 further exacerbates the situation. Regulators have also increased pressure on banks to reduce their exposure to commercial real estate, which is leading to a scarcity of liquidity for commercial real estate holders and less favorable terms on the bank debt that is available.
With robust economic indicators such as strong corporate profits, solid GDP, record-high home equity, soaring home prices, and persistent above target inflation, the Federal Reserve has no compelling reason to significantly lower interest rates. Considerable economic challenges remain including rising government debt, lower values for commercial real estate, and economic struggles in Europe and Asia. These factors contribute to a scarcity of available capital to refinance trillions in commercial real estate debt at interest rates which are often double those of the maturing debt. Even with potential Fed rate reductions, regulatory constraints on lenders and Federal Reserve balance sheet deleveraging will contribute to a scarcity of capital and may maintain high market interest rates for borrowers.
Move Towards Transitional Lending
Given current real estate market dynamics, investors may need to consider “transitional” lending options such as bridge debt and preferred equity. These short-term lending solutions, 1-4 years in length and offering interest-only or interest-deferred options, are emerging as important intermediate capital solutions for commercial real estate investors.
For investment real estate transaction levels to improve, and to enable maturing commercial real estate debt to be successfully refinanced in a higher interest rate environment, interest rates must be lower than cap rates. We believe loan volume will gradually increase through several channels:
■ Foreclosures leading to asset value resets.
■ Capital injections to bolster loan-to-value and debt coverage ratios.
■ Sellers making realistic price adjustments.
■ Potential reductions in market interest rate reductions.
Bridge debt will be a primary debt source in facilitating these avenues. Both banks and investors favor short-term debt due to reduced long-term risk and the ability for distressed buyers to reposition assets using more flexible financing.
The Fidelity Bancorp Funding Difference
Under the seasoned guidance and new ownership of managing partners David Frosh and Charlie Woo, Fidelity boasts a deep understanding of both short and long-term lending. We prioritize top-performing loan officers and real estate agents and treat them as our primary customers.
Too many lenders advertise ridiculously low rates, soft underwriting, and extremely high loan-to-value ratios packaged around claims of “world-class service”. Reality often differs significantly from what is promised as these teaser prices are often not the final soft and hard costs for you and your client. Many lenders just want the deal off the street while pushing the borrower and lending source into a box that is often different from what was promised. This leads to unexpected challenges including your deal not getting done.
What makes Fidelity Bancorp Funding better is simple: we lend from our own balance sheet which provides complete discretion on funding decisions. With Fidelity, what we offer is always what you get. While we will always be competitive with rate and term, if we say “yes” to a deal, we will fund.
Bridge lending, by nature, generates deals that do not meet traditional lending standards and come with grey areas, friction points, and problems. We overcome these problems daily for our partner real estate agents and mortgage brokers. We close deals and get you paid so you create happy and repeat customers.
For professionals interested in underwriting and selling transitional financing solutions, Fidelity Bancorp Funding provides invaluable expertise and support. Contact us today to discover how our tailored transitional lending solutions can best address the challenges your clients are facing.
