As elevated prices and interest rates continue to weigh on consumers at large, Kinkaide expects more difficulty to come for the variable mortgage market. He says funds with exposure to variable mortgages, both private and public, are also likely to be sideswiped.
Recently, Starlight Investments put a pause on distributions for two of its funds specializing in U.S. properties. Its U.S. Residential Fund and the U.S. Multi-Family (No. 2) Core Plus Fund, which have $840 million in combined AUM, are facing challenges as the short-term, are now being stung by the variable-rate mortgages that had been used to finance their purchases.
“The size and pace of interest rate increases has been unprecedented and has resulted in interest rates that are significantly higher than projected at the time the Fund financed its properties,” the firm told investors in notes for both funds. “The significant increases in interest rates have also contributed to an increase in volatility across capital markets, leading banks and other debt providers to reduce their lending capacity while increasing the cost of new loans.”
Another area Kinkaide is seeing pressure is new development finance. “With rates moving so quickly, a lot of developers are scrambling to reassess their project budgets to integrate higher interest costs and greater equity contributions lenders are now looking for” he says.
Looking across the private debt space, Raintree is seeing continued strength in lending to industries like agriculture, equipment finance, and energy.
