Banks Herald End of Extend-and-Pretend with Sales of Problem Loans

Real Estate attorneys Douglas Praw and Katelyn DeMartini were interviewed for a Bisnow article on the end of the extend-and-pretend era of commercial real estate lending and the growth of the private credit industry. Historically, the small pool of debt buyers limited banks' ability to offload loans, but with the surge in private debt funds – 100 in 2011 compared to 1,080 in 2023 – private lenders have taken some of the market share previously held by direct bank lending. Mr. Praw and Ms. DeMartini talked about how this is playing out in the commercial real estate industry, where the global debt market is estimated at $11.9 trillion.

"Folks are looking for ways to get to the dirt, and there are some lenders out there who are sitting on distressed assets, looking for a way to get out," he said. "People have come around to the thesis that if I can pick up a note at a slightly discounted rate, then it may be worth some of the risk, and at least I can get to the property at some point."

Ms. DeMartini added that debt purchases can provide a first-come, first-served opportunity for buyers still contending with below-average property sales.

"As the market kind of continues to fluctuate, it's potentially a really great chance to get into something that might not otherwise be available for some folks from an investment perspective," she observed.

READ: Banks Herald End of Extend-and-Pretend with Sales of Problem Loans (Subscription required)