HISTORIC Loan modifications. Here's what you need to know (and how to capitalize) [Market Updates]

2024 is set to be a groundbreaking year for loan modifications. As a real estate investor, this is your signal to pay attention. In this blog post, we'll dive into what's being modified and how you can capitalize on distressed real estate in the next 12-18 months. Plus, we'll debunk some fear-mongering headlines along the way.

A Surge in Loan Modifications

As of May 2024, lenders have modified $22 billion in loans. For context, 2023 saw $16.8 billion in modifications, while 2022 had only $2.3 billion. Clearly, there's a massive upward trend in loan modifications, which we can call what they are – signs of distress.

Why Banks Modify Loans

Banks typically hate modifying loans. They only do so when a property faces foreclosure or a short sale scenario, aiming to protect their investment. Currently, about half of these modifications are loan extensions. However, these short-term fixes won’t be enough to correct big drops in valuations for assets bought at peak pricing. 

The Drop in Asset Valuations

Many assets have seen a 20-25% drop in valuations since their peak. Extending loans by just 6-12 months likely won't give the market enough time to correct these values significantly. Essentially, banks are just kicking the can down the road.

Opportunities for Real Estate Investors

For those in the commercial real estate game, the next 12-18 months will offer generational opportunities. Discounts of 20-25% in primary real estate markets didn't even happen in 2010. However, there's a catch...

While $22 billion in loan modifications sounds massive, it represents just 1% of the $2 trillion in multifamily debt. This tiny drop in a vast ocean means you won't see the catastrophic market collapse some headlines predict. A 1% distress rate doesn't signal a distressed market.

Why This Scenario Is Ideal

These conditions create the perfect storm for capitalizing on distress without actually taking on significant risk. The opportunity to buy a distressed asset but not buy into a distressed market are rare in real estate with the caliber of assets that we’re targeting. 

Join the Hunt

There are $22 billion in distressed loans out there, and we're hunting for the best deals every single day. We're closing in on some homerun deals, and you can get your piece of this generational opportunity, make sure you join our email list to get deals sent your way. 

Hope to get in touch soon!