2020 was a volatile year for the commercial real estate industry. A record number of businesses temporarily or permanently shut their doors as they grappled with the impact of COVID-19. As tenants struggled to pay their rent, many real estate owners failed to stay current on their mortgages.
Although COVID-19 has negatively impacted real estate owners, private credit funds may soon cash in on their economic downturn. Here's what you need to know about how private credit funds target those unable to pay back their real estate loans.
What's Going on With Real Estate?
It's no secret that COVID-19 hurt the real estate market. But you might be surprised to learn just how much the economic issues hindered the commercial real estate industry.
In the first half of 2020, New York City commercial property sales dropped 54 percent compared to the first half of 2019. To make matters worse, $430 billion in commercial and multifamily real estate debt will mature in 2021.
Since many real estate owners do not have the capital to pay back their debt, they risk defaulting on their loans. Real estate owners at-risk of default may sell their properties or seek new lenders to buy their loans. That's where private credit funds come into play.
How Private Credit Funds Take Action
Many private firms offer real estate lenders new debt financing by taking on distressed loans from banks. For lenders, private credit funds promise profitable returns when borrowers are hesitant to take on new debt. For real estate owners, they provide an opportunity for temporary financial relief.
The large swath of real estate debt flooding the market comes at an opportunistic time for private credit fund managers. Private credit funds currently have $196 billion in capital available for commercial real estate deals.
Debt financing through private credit funds may seem like a viable alternative to defaulting, but it's not without its risks. Many real estate owners may still end up foreclosing and giving their properties to lenders at a discount.
Private credit funds may be a short-term solution to a long-term problem for real estate owners plagued with debt. If you face rising debt during this difficult time, you should speak with an experienced attorney at the Law Offices of Melvin Monachan, PLLC.
Our team of expert attorneys can advise you on your options and protect you from foreclosure. Call us at (347) 389-1682 to schedule a consultation.