Debt driven woes in real estate draw private credit

The real estate sector finds itself at a pivotal crossroads, grappling with rising interest rates and debt-driven challenges that have triggered a market shift and prompted an increased demand for non-bank financing solutions. Amid this evolving landscape, EquitiesFirst offers an alternative capital solution to address the needs of investors in the sector.

Warning signs and implications for the property market

The insolvency of René Benko’s Signa Group serves as a warning signal, highlighting the vulnerabilities faced by property owners amidst rising interest rates. The resultant debt crisis and subsequent insolvency have led to marked devaluation of assets, with Signa’s $29 billion property portfolio suffering from the consequences.^[1] This scenario mirrors a broader adjustment in the global commercial real estate sector within the current market.

Property owners, ranging from small businesses to large corporations, are contending with higher interest rates, falling valuations, and the pressing need for liquidity to pay down debts. Many owners are dealing with unrealized losses, leading to a noticeable deceleration in the dealmaking market.^[2] As loans reach maturity or covenant breaches occur, property owners find themselves compelled to negotiate with lenders or resort to selling assets to raise cash, a process that can take years.

The storm of challenges wreaking havoc in the real estate sector extends to various parts of the world, notably impacting Hong Kong’s real estate market due to the spillover effect from China’s property crisis. With $23.4 billion of bank loans maturing in Hong Kong in 2024, private credit providers, including family offices and asset managers, are stepping in to bridge the potential funding gap.^[3]

Banks on “diet” grows demand for alternative funding solutions

In the wake of shifting market conditions and the industry’s adaptation to a post-low interest rate era, traditional banks’ reluctance and shrinking lending appetite are prompting investors to turn to private firms and alternative lenders.^[4] This shift is driven by the imperative to tackle challenges in refinancing amidst market slowdowns and reflects credit caution in sectors such as real estate.^[5]

In particular, alternative financing solutions such as EquitiesFirst’s securities-backed financing are experiencing a surge in demand.^[6] This flexible capital source enables developers to secure funding for new projects or potentially refinance their existing loans, effectively addressing liquidity constraints and challenges. JP Morgan’s 2024 commercial real estate outlook^[7] emphasizes the critical importance of optimizing cash flow for owners, operators, and investors in this inflationary environment, enabling them to capitalize on emerging opportunities.

Mitigating risks with securities-backed financing

EquitiesFirst is well-positioned to align with the evolving dynamics of the real estate market, offering progressive financing solutions in a climate where traditional lenders are retreating. Securities-backed financing emerges as an efficient and cost-effective way for investors to diversify their exposures in this evolving environment while retaining the upside potential of their core holdings. With borrowing at a potentially lower and fixed cost, this strategy becomes even more attractive to investors who can repay less in real terms.

This progressive capital solution offers much-needed flexibility, which is especially vital to thrive in a volatile market. It provides investors with liquidity to move quickly and decisively in diversifying their portfolios. Moreover, businesses are equipped with the funding necessary to pursue growth opportunities in an environment where flexibility is critical.

As the real estate sector undergoes profound transformation, securities-backed financing acts as a relatively stable and reliable capital source. EquitiesFirst financing, with its non-recourse nature and competitive terms, offers investors a strategic instrument to broaden their portfolio, effectively mitigate risks, and instil the confidence needed to adeptly maneuver the intricacies of the real estate sector, all while maintaining a focus on long-term profits.

[1] https://www.ft.com/content/13e17879-eb58-46ba-b202-4e77e69d82ee

[2] https://www.ey.com/en_lu/real-estate-hospitality-construction/inflation–interest-rates–and-transaction-levels–the-evolution

[3] https://www.bloomberg.com/news/articles/2023-11-27/hong-kong-s-stressed-developers-start-to-turn-to-private-credit

[4] https://internationalbanker.com/finance/the-reasons-for-asset-based-lendings-growing-acceptance-as-a-preferred-funding-source/

[5] https://www.wsj.com/finance/banking/almost-all-loans-are-badwhy-banks-arent-lending-7b1f17eb

[6] https://internationalbanker.com/finance/the-reasons-for-asset-based-lendings-growing-acceptance-as-a-preferred-funding-source/

[7] https://www.jpmorgan.com/insights/real-estate/commercial-real-estate/commercial-real-estate-trends

Disclaimer

Past performance does not guarantee future returns, and individual returns are not guaranteed or warranted.

This Document is intended solely for accredited investors, sophisticated investors, professional investors, or otherwise qualified investors, as may be required by law or otherwise, and it is not intended for, and should not be used by, persons who do not meet the relevant requirements. The content provided herein is for informational purposes only and is general in nature and not targeted to any specific objective or financial need. The views and opinions expressed in this Document have been prepared by third parties and do not necessarily reflect the views and opinions of EquitiesFirst. EquitiesFirst has not independently examined or verified the information provided herein, and no representation is made that it is accurate or complete. Opinions and information herein are subject to change without notice. The content provided does not constitute an offer to sell (or solicitation of an offer to purchase) any securities, investments, or any financial products (“Offer”). Any such Offer shall only be made through a relevant offering or other documentation which sets forth its material terms and conditions. Nothing contained in this Document shall constitute a recommendation, solicitation, invitation, inducement, promotion, or offer for the purchase or sale of any investment product by First Holdings, LLC or its subsidiaries (collectively, “EquitiesFirst”), nor shall this Document be construed in any way as investment, legal, or tax advice, or as a recommendation, reference, or endorsement by EquitiesFirst. You should seek independent financial advice prior to making an investment decision about a financial product.

This Document contains the intellectual property of EquitiesFirst in the United States and other countries, including, without limitation, their respective logos and other registered and unregistered trademarks and service marks. EquitiesFirst reserves all rights in and to their intellectual property contained in this Document. The Document should not be distributed, published, reproduced or otherwise made available in whole or in part by recipients to any other person and, in particular, should not be distributed to persons in any country where such distribution may lead to a breach of any legal or regulatory requirement.

EquitiesFirst make no representation or warranty with respect to this Document and expressly disclaim any implied warranty under law. You acknowledge that EquitiesFirst is not liable under any circumstances for any direct, indirect, special, consequential, incidental, or punitive damages whatsoever, including, without limitation, any lost profits or lost opportunity, even if EquitiesFirst has been advised of the possibility of such damages.

EquitiesFirst makes the following further statements that may be applicable in the stated jurisdiction:

The information contained on this Document is intended for persons located in Australia only and classified as a Wholesale Client only as defined in Section 761G of the Corporations Act 2001. The distribution of information to persons outside this criteria may be restricted by law and persons who come into possession of it should seek advice and observe any such restriction.

The material contained in this Document is for information purposes only and should not be construed as an offer or solicitation or recommendation to buy or sell financial products.

The information contained in this Document is intended to be general in nature and is not personal financial product advice. Any advice contained in the Document is general advice only and has been prepared without considering your objectives, financial situation or needs. Before acting on any information, you should consider the appropriateness of the information provided and the nature of the relevant financial product having regard to your objectives, financial situation and needs. You should seek independent financial advice and read the relevant disclosure statements or other offer documents prior to making an investment decision about a financial product.

Dubai: Equities First Holdings Hong Kong Ltd (DIFC Representative Office) at Gate Precinct Building 4, 6th Floor, Office 7, Dubai International Financial Centre (commercial license number CL7354) is regulated by the Dubai Financial Services Authority (“DFSA”) as a Representative Office (DFSA Firm Reference No.: F008752). All rights reserved.

The information contained in this document is intended to be general in nature, and, to the extent that it is perceived as advice, any advice contained in this document is general advice only and has been prepared without considering your objectives, financial situation, suitability of the financial products or your needs.

The material contained in this document is for information purposes only and should not be construed as financial advice, including an offer or solicitation or recommendation to buy or sell financial products. The information contained in this document is intended to be general in nature and any advice contained in this document is general advice only and has been prepared without considering your objectives, financial situation, suitability of the financial products or your needs. Before acting on any information, you should consider the appropriateness of the information provided and the nature of the relevant financial product having regard to your objectives, financial situation and needs. If you do not understand the contents of this document, you should consult an authorised financial adviser.

This document relates to a financial product which is not subject to any form of regulation or approval by the DFSA. The DFSA has no responsibility for reviewing or verifying any documents in connection with this financial product. Accordingly, the DFSA has not approved this document or any other associated documents nor taken any steps to verify the information set out in this document, and has no responsibility for it.

Hong Kong: Equities First Holdings Hong Kong Limited is licensed under the Money Lenders Ordinance (Money Lender’s Licence No. 1659/2024) and to carry on the business of dealing in securities (Type 1 licence) under the Securities and Futures Ordinance (“SFO”) (CE No. BFJ407). This Document has not been reviewed by the Hong Kong Securities and Futures Commission. It is not intended as an offer to sell securities or a solicitation to buy any product managed or provided by Equities First Holdings Hong Kong Limited and is only intended for persons who qualify as Professional Investors under the SFO. This document is not directed to individuals or organizations for whom such offers or invitations would be unlawful or prohibited.

Korea: The foregoing is intended solely for sophisticated investors, professional investors or otherwise qualified investors who have sufficient knowledge and experience in entering into securities financing transactions. It is not intended for, and should not be used by, persons who do not meet those criteria.

United Kingdom: Equities First (London) Limited is authorised and regulated in the UK by the Financial Conduct Authority (“FCA”). In the UK, this Document is only being distributed and made available to persons of the kind described in Article 19(5) (investment professionals) and Article 49(2) (high net worth companies, unincorporated associations etc.) of Part IV of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (‘’FPO’’) and any investment activity to which this presentation relates is only available to, and will only be engaged in with, such persons. Persons who do not have professional experience in matters relating to investment or who are not persons to whom Article 49 of the FPO applies should not rely on this document. This Document is only prepared for and available to persons who qualify as Professional Investors under the Markets in Financial Instruments Directive.