Borrowers mull right time to refinance amid uncertainty

Tightened credit standards for real estate loans are prompting some borrowers to refinance earlier

January 18, 2024

Raising financing in the past 18 months has proven to be more challenging than usual. Despite borrowers’ expectations for financing to become simpler as central banks show signs of cutting rates, lenders continue to exercise caution in their loan underwriting, with many requiring more comprehensive information.

Globally, JLL forecasts that $3.1 trillion of real estate assets have debt maturing by the end of 2025. 

While certain borrowers remain undecided about whether to refinance now or to wait for more favourable terms, there’s already been a flurry of activity among other borrowers who are actively seeking to refinance existing facilities.

Last November, a global investment manager, leveraging the expertise from JLL Debt Advisory’s Australia team, secured attractive terms for a c. AUD 100 million ($66 million) senior debt financing from a foreign bank for an office asset in Sydney’s Central Business District (CBD).

“Valuation and income pressures, as well as general reduced lender appetite for some sectors, such as offices, are creating headwinds and potential funding gaps on upcoming debt maturities for many clients,” says Josh Erez, Director of Debt Advisory Australia, JLL. “But with some creative structuring, deals are still being done.”

Banks have been increasingly cautious and tightened credit standards for loans secured by commercial real estate assets. Now, banks are also more cashflow-driven, with many reducing leverage levels to ensure that underlying cashflows from the asset can cover interest servicing, explains Rachel Heng, Director of Debt Advisory, Asia Pacific (APAC), JLL.


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Across many countries in APAC, even in Singapore, cash-in refinancing, where borrowers are required to deposit cash or fresh equity, is not uncommon, according to Heng.

What this means is that borrowers, especially those with loans exceeding $300 million, should prioritise refinancing at least nine months in advance, instead of the typical three to four months, says Paul Brindley, Head of Debt Advisory, APAC, JLL.

Taking a prudent approach and initiating the refinancing process early helps mitigate the risk of maturity defaults, Brindley adds, which is particularly critical for funds that need to be accountable to limited partners (LPs).

“The underlying idea is that bearing the higher costs of capital now beats having fewer available loan options later,” Brindley says. “With more demand expected among borrowers, it may be tougher to negotiate favourable terms later in 2024 as compared to what you can secure today.”

Closing the gap

In the current complex financing landscape, securing competitive terms depends on market knowledge, strong lender relationships, and understanding lender preferences.

Partnering with a debt advisor to execute a thorough process increases the likelihood of obtaining favourable terms, Brindley says. “A key benefit is bringing in new lenders who are able to offer unexpectedly competitive pricing and terms, which would otherwise remain unknown without running this process.”

Currently, borrowers can still choose from a wide range of funding options.

“There’s still liquidity in the market, but it requires a deeper and harder search for it,” says Erez. For instance, in the recent refinancing of the Sydney CBD asset, a group of approximately 40 lenders comprising local and foreign commercial banks, investment banks, global insurance and debt funds was canvassed.

Alternative lenders have been stepping in to fill the financing gap left by banks, particularly in underperforming asset classes and markets where banks are more cautious. However, ultimately this can come at a higher cost than traditional bank financing.

The APAC debt opportunity

Three in five APAC investors surveyed by JLL last year highlighted debt as their top investment strategy focus.

The potential is greatest in the region’s gateway cities, which are expected to face a refinancing shortfall of $3.6 billion next year, according to JLL estimates.

A majority of alternative lenders are currently active in Australia and are gradually expanding to the wider Asia-Pacific region, where the market remains underpenetrated.

“These lenders are often able to offer competitive terms, particularly in resilient, defensive asset classes that can achieve stable long-term returns,” says Heng. “For instance, insurance companies in Japan can offer longer loan tenures of between seven to 12 years at competitive terms.”

This provides a better asset-liability match for long-term owners, Heng adds.

“Financing organisations, be it banks or non-bank lenders, will be paying closer attention to sponsor, sector and asset quality,” says Brindley. “The coming months will put greater focus on valuations and tighter lending standards will impact financing outcomes.”

More global institutional investors are interested in allocating capital to debt strategies rather than equity due to better risk-adjusted returns, he adds.

Availability, not just the cost of debt, holds significance, concludes Brindley.

Contact Paul Brindley

Head of Debt Advisory, APAC, JLL

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