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Understanding Your CRE Operations to Optimize Debt and Equity

We sent the Thirty Capital Financial team to Miami to attend the 2nd Annual IMN Middle-Market Multifamily Forum Florida. During the conference, Thirty Capital Financial CEO, Kevin Swill, spoke as a panelist for the session: Key Rules of Thumb to Underwrite When Developing a Proforma in Today’s Market.

Our team is always excited to meet industry peers, reconnect with clients face-to-face, and gain new industry knowledge. And at this year’s conference, we were able to do that and more. We asked Kevin to share his key takeaways from the panel. Read below!

The Commercial Real Estate Slowdown

Today, the commercial real estate market is in the middle of a slowdown. This commercial real estate slowdown has created a snowball of effects causing decreased transaction volume, volatile interest rates, and reduced cash flow. Essentially, these effects signal the need to truly understand your operational processes. Understanding your operations can help you determine where you can cut or increase expenses to optimize cash flow.

Understanding Your CRE Operations

Over the past three years, expenses have outgrown revenue. In today’s inflationary environment, it isn’t safe to assume that you’ll realize a constant percentage of year-over-year expense growth. As expenses continue to outpace revenue, effective operations and expense management is critical.

To navigate today’s inflationary environment and maximize operation’s management, you can:

  • Consider your asset’s geographic region
  • Examine your assets and their expenses
  • Review each line item
  • Identify where cost adjustments can be made
  • Determine expense growth

With these steps, you can better understand your operations and expenses to make more informed decisions about your portfolio and opportunities to drive cash flow.

Optimizing Your Debt and Equity 

As the slowdown continues to impact key areas of commercial real estate, some firms may seek new methods to optimize their expenses. During the panel, debt and equity optimization were discussed.

In order to optimize your debt, you need the best possible net operating income (NOI). Refinancing a CRE loan is a common method used to maximize multifamily cash flow. However, with continually rising interest rates, refinancing your loan may not be the best option. An alternative to refinancing could be opting for a second mortgage to optimize your debt and increase equity. The equity gained from the second mortgage can be used to renovate outdated units and in turn attract new tenants and fill vacancies. Whatever route you choose, having a debt and equity optimization plan is critical.

Driving CRE Cash Flow

In commercial real estate, cashflow is critical to meeting and exceeding financial obligations, expectations, and growth projections across the firm. Essentially, cash flow dictates your property’s overall performance. Positive cashflow creates opportunities to grow the portfolio and can produce faster returns to the sponsor and investor(s). On the other hand, negative cashflow can drain your resources and impact portfolio growth.

As we look ahead over the next three years, we anticipate a reset of the market – where commercial real estate will return to a market-based interest rate and pricing environment for assets. So, it’s important now to monitor your operations, maximize expenses, and seek guidance on whether it’s time to refinance, sell, or hold your assets.

About Thirty Capital Financial:

Thirty Capital Financial is a leading service provider to the commercial real estate industry. Our team of advisors have spent decades providing solutions for defeasance, interest rate hedging, and debt management. With our personalized approach, we provide you with the tools, solutions, and strategies to confidently manage debt while supporting the growth of your company.

Contact us today to speak with an expert!

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