Commercial real estate hasn’t quite returned to pre-pandemic levels, but it has improved enough that Emerald Creek Capital Managing Director Jeff Seidler is comfortable using words like "normalized" and "more predictable" to describe the state of CRE finance.

Seidler, whose New York City-based firm is a bridge lender for commercial developments, will be a speaker at Bisnow’s National Commercial Real Estate Finance Conference at 180 Maiden Lane in New York City on Sept. 14. He will be participating in a panel discussion on construction financing and its impact on development.

Ahead of the event, Bisnow asked Seidler to share his observations on the state of the market, which he said has become more attractive for some developers.

Bisnow: As a bridge lender, what unique perspective will you bring to your panel about construction financing?

Seidler: Compared to permanent lenders, Emerald is involved in projects throughout the entire life cycle. As Emerald provides acquisition loans for development sites, we are involved in planning and pre-development. As far as construction loans, we are involved in negotiating the construction contract as well as monitoring progress.

We finance condo inventory and lease-up transactions, providing direct insight into the performance of the end product. We believe this gives us a unique and well-rounded approach to investing in real estate.

Bisnow: What challenges are borrowers in the development world facing in today’s environment?

Seidler: As of Q3 2023, a lot of construction challenges have normalized. Supply chain issues, for example, are less prevalent and exist on a smaller scale. After the disruptions of the past couple of years, contractors have a better grasp of material costs and lead times, leading to more predictable guaranteed maximum prices and stipulated sum contracts.

However, and primarily due to the critical path, utility lead times can be challenging. In addition, interest rates continue to influence cost, but they are at least reasonably quantifiable today. As it relates to rates, more prohibitive than cost are the impacts on projecting terminal cap rates or user housing costs. The expiration and nonrenewal of the 421-a subsidy, paired with high land costs, are the most impactful challenges in the development of multifamily today in New York City.

Bisnow: Are market conditions driving any new opportunities for developers?

Seidler: We are seeing that a less competitive playing field makes today's market more attractive for some developers. Property markets in New York City for residential, retail, industrial and hospitality are performing well. Demand is strong and supply is low, leading to all-time-high rents for apartments.

Also, retail space has had positive absorption for several consecutive quarters. For hotels, revenue generated per room is up over 20% year-over-year. An important indicator for NYC is tourism. More than 60 million people are projected to visit the city in 2023, up from 33 million in 2021.

Bisnow: When we last spoke, your advice to our readers was to stay calm and not overreact to market conditions. What would you tell them now? Have finance options improved at all?

Seidler: My sentiment generally remains the same. When we spoke in early January, there was an overwhelming amount of fear, primarily that inflation-driven rate hikes would result in property value loss. Fortunately, as of July, inflation was down from its high of 9% to 3% and, as I had expected, rent growth in the multifamily and industrial sectors has offset widening rates.

Like most people, I did not foresee the fallout of the regional banks. Although the fallout fears seem to have settled a bit, I expect there will be increased regulation for banks. Plus, new reserve requirements will effectively raise the cost of capital for borrowers.

I would not say that financing options have greatly improved, but there were a lot of doomsday opinions that financing would be as limited as it was during the Great Recession. Fortunately, that is not the case today.

If you are not a repeat customer of a bank, then you need to establish a depository relationship. However, other capital sources — including Federal Housing Finance Agency, commercial mortgage-backed securities, life companies and debt funds — are more willing to lend than many expected.

Bisnow: Please tell us about a borrower that Emerald has helped in 2023.

Seidler: Emerald provided an acquisition and rehab loan for an Alt-1 on the Upper East Side of Manhattan. The developer was approached to sell air rights, but the release of those air rights was not permitted under the loan agreement.

We worked expeditiously with the borrower to consummate the sale and provided flexibility on the release price, enabling the borrower to distribute some of the proceeds to the limited partners.

Click here to register for Bisnow’s National Commercial Real Estate Finance Conference.

This article was produced in collaboration between Emerald Creek Capital and Studio B. Bisnow news staff was not involved in the production of this content.

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