The commercial real estate market has been in the longest period—10 years or so—of sustained growth and activity in recent memory. Industry experts have been anticipating, and predicting, a real estate downturn for the past few years. Investment sales have slowed, the retail apocalypse has continued, foreign investment has halted, the interest rate environment (and the cost of funds) has changed, institutional lenders are skittish (especially regarding ground-up construction) and federal and local regulations are impacting lending, property values and the real estate market as a whole. And, real estate, as the saying goes, is “cyclical.” The time is ripe—indeed some would say, long overdue—for the correction to take hold, for real estate to right size, for loans to fall into default and distress.
In this cycle, the loans (not to mention the underlying assets, ownership and investment structures) are more complicated than in downturns past; the parties—lenders, co-lenders, participants, debt funds, opportunity funds, sponsors, joint venture partners, developers, tenants, contractors, investors—their relationships and the economic stakes are far more complex, internecine and clandestine than ever before.
