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  • Writer's pictureZSS CPAs

Debt Trouble: Real Estate Sectors Aren't Safe

Updated: May 17

During the COVID years, every real estate sector faced its own set of ups and downs. But now, they've come together on one issue: tweaking their debts. A survey by BDO shows that each sector plans to adjust their debt setups in the next year. With a whopping $2.7 trillion of debt set to mature by 2027 and interest rates climbing, it's not shocking that over a quarter of real estate firms want to tweak their debt deals. Yet, this path isn't easy.

Growing Trend: Debt Adjustments in Real Estate

Real estate owners aiming to adjust their debts face significant challenges, to the point where some are resorting to strategies reminiscent of 2008, like surrendering their keys to lenders. Recent alterations in loan-to-value ratios by lenders have added to owners' difficulties. While a 70% loan-to-value ratio has long been the norm across most sectors, owners are now encountering ratios as low as 55%, intensifying the need to secure additional capital to strengthen their equity position with lenders. Private equity emerges as a key capital source bridging this gap.

Looking Ahead

Adjusting debts could provide a path for lenders and borrowers to navigate economic uncertainties and establish better long-term debt arrangements.

Curious to explore how ZSS CPA's can assist companies in managing their debt agreements? Reach out to us for more information.

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