BHI continues to provide liquidity to CRE and Healthcare clients
Comparing the commercial real estate market to that of a year ago, there is no denying that the sector is facing significant challenges like access to capital, higher interest rates, and slowing economic growth.
According to Walker & Dunlop, there is a staggering $1.5 trillion of domestic CRE debt that will come due for repayment before the end of 2025. Borrowers are adapting to the new reality that the free money they have become accustomed to has been replaced with a higher rate environment that has triggered a reset in property values.
Yet against that backdrop, there are continued pockets of opportunities across different geographic areas and property classes. Deeply rooted in the market, BHI CEO Gil Karni and Steven Caligor, Head of Real Estate & Healthcare, answer top-of-mind questions and share their views on the outlook for the CRE and healthcare sectors.
What’s your near-term view of the CRE market?
Karni: Generally speaking, the commercial market is in transition with a hyper-focus on asset classes, location – specifically regions and related submarkets – and a sponsor’s financial wherewithal to support project costs. As such, sponsors are proceeding with caution, and in some cases pulling back due to increased construction and carrying costs that reduce the project’s overall profit margins.
What property sectors face the biggest challenges?
Caligor: Office is certainly the hot topic these days. The trends of hybrid and remote work resulted in more than 5 million square feet released to the market in the first quarter and a national vacancy rate of 19%, marking an increase for five consecutive quarters. Retail also continues to show some weakness. While consumer spending has buoyed neighborhood and community shopping center performance, the sector has posted a 10% vacancy rate over the past four quarters.
There has been a lot of focus on niche sectors, what’s your outlook for healthcare and senior housing?
Caligor: We see healthcare as a growth marketplace that is less impacted than other sectors, largely because it is driven by the demographics of a rising senior population, which offsets some of the economic factors. According to data from the Population Resource Bureau, the number of Americans 65 and older is projected to nearly double to 95 million by 2060, comprising 23% of the population, up from 16% in 2018. We have seen more focus on assisted living in select regions, and the demand for skilled nursing will only grow in the years ahead.
Clearly, there are some short-term headwinds facing the sector created by rising interest rates and current market conditions. While we expect these factors to remain consistent over the next few quarters, over the long term, we believe there is a good runway ahead, especially for best-in-class sponsors.
How is BHI positioned to support clients in the current environment?
Karni: Despite the noise in the market on tightening liquidity, we remain committed to providing financing to support both our CRE and healthcare clients. BHI is the U.S. division of Bank Hapoalim B.M. The international bank has an A rating from S&P and Fitch, with $189 billion in total assets and $13.2 billion in shareholder equity. We are well-capitalized and well-positioned to weather rapidly changing and volatile markets, and we have the market expertise to navigate in a more challenging market.
Do you have any examples of recent deals?
Caligor: We recently provided a $65.34 million construction loan for a nine-story mixed-use development in Astoria, New York that will feature 121 residential units and retail to meet the demand of the burgeoning area. We also provided a $25.5 million term loan to a client for the acquisition of a 200-bed nursing home in New Jersey.
Are there other pockets of opportunity?
Karni: We remain bullish on residential, particularly in markets such as Florida, the sunbelt states, and submarkets in the Northeast. Hospitality has also regained traction as business and personal travel rebound.
Is there anything else you would like to add regarding the opportunities you see for sponsors in the current market?
Karni: Although there are some near-term challenges ahead, investment opportunities emerge out of market downturns. We understand the ebb and flow of the market, and importantly, we take the time to understand the nuances of each project. Whether you’re starting new construction, or redeveloping, repositioning, or refinancing an existing income-producing property, we work with developers, owners and investors to understand the unique circumstances of a deal and structure creative solutions.
BHI is the U.S. division of Bank Hapoalim B.M. Bank Hapoalim provides its clients access to a broad array of products and services available through its bank and non-bank affiliates. Not all products and services are provided by all affiliates or are available at all locations. All credit products are subject to credit approval. Nothing contained herein should be construed as a commitment to lend by BHI or any of its affiliates.