The Small Balance Intersection Update - November 29, 2024
Michael Boggiano, CPA CPM
Experienced CRE Finance Professional | AI & Data Analytics Enthusiast | Championing Small Balance Commercial Lending
Quote of The Day:
"The best way to predict the future is to create it." – Peter Drucker
Welcome to the November 29, 2024, edition of The Small Balance Intersection!
Today’s edition explores critical developments shaping the real estate and small business landscapes. We delve into the refinancing crunch for apartment loans maturing in 2024, the surge of business email compromise scams threatening real estate transactions, the robust supply growth anticipated in the 2025 apartment market, and a federal initiative delivering billions in financing for small businesses. These stories highlight the challenges and opportunities defining the sectors today.
Wall of Maturities in Apartment Loans
The commercial mortgage market faces a critical refinancing challenge in 2024, with $296 billion in apartment loans—14% of the total loan volume—set to mature. Many of these loans were originated during the pandemic at historically low Treasury rates, but now face significantly higher refinancing costs amid 2024’s 4.19% average rates. While this presents risks, it also opens opportunities for lenders and investors targeting loans with stable cash flows or strong collateral.
Caution: Scammer Zone
Business email compromise (BEC) scams, including real estate wire fraud (REWF), are rising, with REWF losses increasing 72% from $258.4 million in 2020 to $446.1 million in 2022. Cybercriminals impersonate trusted entities to intercept large transactions, often resulting in catastrophic losses for victims. The FBI advises using trusted channels for payment verification, enabling two-factor authentication, and acting quickly to recover funds in the event of a scam.
2025 Apartment Market Outlook
Over 500,000 apartment units are expected to be delivered in 2025, with New York leading the charge at 35,000 units. Fast-growing Sun Belt cities and smaller markets such as Asheville, NC, will see pronounced growth rates, while major markets like Los Angeles and Seattle also experience record-breaking inventory increases. This significant supply pipeline poses both challenges and opportunities for developers and investors navigating high inventories next year.
Opportunity Avenue
The State Small Business Credit Initiative (SSBCI) supported $3.1 billion in financing for over 3,600 small businesses between August 2022 and December 2023. Backed by the American Rescue Plan, the initiative leveraged $2.6 billion in private funding, with 75% of transactions benefiting underserved communities. This robust program continues to drive economic growth and job creation across industries such as transportation, professional services, and manufacturing.
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Did you know that on this day:
In 1972, the first commercially successful video game, Pong, was released? The game helped to establish the video game industry as a whole.
In 2013, Amazon reveals plans for drone deliveries: Jeff Bezos announced this futuristic business venture, shaking up the logistics industry.
In 1890, First Army-Navy football game played: The annual tradition kicked off, becoming one of the most iconic rivalries in American sports.
Understanding the Wall of Maturities in Apartment Loans
Maturity Road
In the commercial mortgage market, it's typical for 7-10% of loans to mature annually, requiring refinancing. However, 2024 presents an elevated refinancing challenge, with $296 billion in apartment loans maturing—14% of the $2.09 trillion apartment loan universe, exceeding the expected average. This volume decreases slightly in 2025 and 2026, with $223 billion (10.7%) and $199 billion (9.05%) maturing, respectively.
The primary risk lies in refinancing loans at significantly higher interest rates than their original terms. Many loans maturing this year were originated during the pandemic's liquidity bubble, when 10-year Treasury rates averaged below 1.5%. In contrast, 2024 has seen an average Treasury rate of 4.19%, resulting in much higher refinancing costs.
Loans from 2020 and 2021 pose particular challenges. Many carried floating coupons, which have risen dramatically, now exceeding 7-8%. This year, approximately $19 billion in 2021-originated loans matured, with similarly high floating-rate coupons expected for loans rolling in 2025. Despite these challenges, market capacity remains robust, with over 2,200 lenders originating $480 billion in loans in 2022.
While refinancing at higher rates presents risks, it also offers opportunities for lenders and investors. Identifying loans with manageable cash flows or favorable collateral conditions could yield attractive returns amid the shifting market dynamics.
For a deeper dive, visit: Trepp: Wall of Maturities.
Caution: Scammer Zone
Business Email Compromise Scams: A Growing Threat
Business Email Compromise (BEC) scams have emerged as a significant threat to organizations, particularly in real estate transactions. These scams involve cybercriminals impersonating trusted entities to steal sensitive information or funds. A subcategory, Real Estate Wire Fraud (REWF), specifically targets large financial transfers, often with catastrophic losses for victims. Between 2020 and 2022, victim reports to the FBI increased by 27%, with REWF-related monetary losses jumping 72%—from $258.4 million to $446.1 million.
Protecting against BEC scams requires vigilance. The FBI advises avoiding links in unsolicited emails, verifying payment requests through trusted channels, and enabling two-factor authentication. Companies should also monitor social media for oversharing and scrutinize email details for inconsistencies. If a scam occurs, acting quickly to notify banks, authorities, and cyber insurance providers increases the chances of recovering funds. Preventive measures and swift responses are essential to mitigating these rising threats.
For more information, read the full article: Business Email Compromise Scams.
2025 Apartment Market Outlook: High Supply Across Major U.S. Markets
??? Traffic Sign: High Supply Ahead Street Name: Development Drive
In 2025, over 500,000 apartment units are expected to be delivered across the U.S., marking another year of substantial supply growth, despite potential delays. Fourteen markets are projected to receive more than 10,000 new units, with New York leading at nearly 35,000 units, representing a modest 1.8% growth rate. Phoenix, by comparison, expects 29,600 units, reflecting a higher growth rate of nearly 7%.
Texas markets, including Dallas, Austin, and Houston, are set to receive between 14,000 and 27,000 units each, while Sun Belt cities such as Charlotte, Raleigh, Atlanta, and Orlando will also see significant deliveries. West Coast markets like Los Angeles and Seattle will experience record-breaking supply increases, with Los Angeles adding 19,400 units in Q3 alone, equating to a 1.6% annual growth rate.
Smaller markets will see even more pronounced growth rates. Asheville, NC, leads the nation with a 13.3% inventory increase, adding 3,500 units. Other smaller markets, such as Huntsville, AL, and Cape Coral-Fort Myers, FL, will grow by 7% or more. Notably, 149 of the 150 largest U.S. markets will receive new supply, with Youngstown, OH, as the sole exception.
This robust supply pipeline will impact market dynamics, presenting both opportunities and challenges for developers and investors navigating rising inventories in 2025.
For more insights, read the full analysis: 2025 Apartment Supply Leaders.
Opportunity Avenue
SSBCI Supports $3.1 Billion in New Financing for Small Businesses
The U.S. Department of the Treasury announced that the State Small Business Credit Initiative (SSBCI) has facilitated $3.1 billion in financing for over 3,600 small businesses from August 2022 through December 2023. This includes nearly $2.6 billion in private funding, creating or retaining more than 46,200 jobs. Funded through the American Rescue Plan, the program provides $10 billion to states, territories, and Tribal governments to support small businesses, particularly in underserved communities. The median loan size was $87,700, and 75% of transactions supported underserved businesses. Venture capital programs contributed $211 million, matched by $1.2 billion in private investments, benefiting over 600 companies. The initiative also involved 470 banks, credit unions, and Community Development Financial Institutions (CDFIs), with CDFIs supporting 63% of loans. The SSBCI-supported industries include transportation, professional services, manufacturing, and retail. With over $8.9 billion approved for financing programs, the initiative continues to strengthen small businesses and foster economic growth. For more details, visit the SSBCI Annual Report.
Dealer Relationship Manager ?? United States Army Veteran ?? 6X LinkedIn Top Voice ?? Harley-Davidson Enthusiast ?? Aviation Fanatic ??
5 小时前Inching our way forward Michael - thanks for the update!