CRE Is In A Tough Spot. Choosing Partners Thoughtfully Is Essential To Navigating The Road Ahead

Stacie Nekus, senior vice president of community capital development at KeyBank, was attending a Utah Housing Coalition conference this summer when a client from a regional bank said something that has stuck with her.

It didn't directly concern any of the challenges that players in commercial real estate have struggled with in recent years. Instead, it was a simple statement that the client was relieved it had Nekus and her firm in its corner.

“‘This is such a mutually beneficial relationship for us,’ they told me,” Nekus said. “They said they loved that we shared the same ideals and credit standards.”

On their face, those comments were a warm endorsement from a customer with which KeyBank partners on debt and equity. But to Nekus, it also illustrated a truism that CRE players must keep in mind in today’s economy.

“This industry is all about partnerships and who you choose to be a partner with,” she said. “You want to make sure that you're working with the best people that you can possibly find and who will be there with you to figure out how to make a deal work at a time when it’s hard to make deals pencil.”

Nekus, an industry veteran who heads KeyBank’s equity growth initiative for affordable housing, is very familiar with the challenges confronting CRE.

As a board member of the Affordable Housing Tax Credit Coalition, Nekus knows one of the challenges is rising insurance premiums over the past 18 months. Some property owners are struggling to even find coverage as insurers are pulling out of high-risk markets such as Florida and California.

The coalition has set up a new working group to discuss these and other insurance issues that developers face and to look for solutions. Nekus said the cost of insurance isn't a concern limited to smaller players.

“Even within KeyBank's multibillion-dollar investment portfolio, property insurance costs are rising way over what we've underwritten in the past,” she said. “This is a really big issue for the industry.”

As a CRE syndicator, KeyBank also understands the challenges its partners face in raising capital. Even if they can find adequate financing, developers are still bumping against supply chain, staffing and other issues that have vexed the industry since the beginning of the pandemic, Nekus said.

And even if supply chains were to suddenly resume operating smoothly and insurance costs fell, CRE would still be dealing with interest rates that have more than doubled in the past couple of years. Nekus said she and her peers are closely monitoring efforts in Congress to strengthen the Low-Income Housing Tax Credit of the Affordable Housing Credit Improvement Act.

“Making more tax credits available to a property could help offset some of the problems developers are having making projects pencil in a year that has been really challenging for everyone,” she said. “In the meantime, we're trying to be a part of the solution as much as we can be, and to be really nimble. If one of our clients wants KeyBank to be at the table with them, we will be there with them.”

Nekus said strong partnerships will continue to be vital in 2024, when many of the same headwinds are likely to continue to batter CRE. In the meantime, the consensus view that affordable housing is one of the signature issues of the day will likely keep people at the table and trying to find solutions.

“Next year is going to continue to be challenging, but I don't see any banks pulling away from their commitment to affordable housing, and banks make up approximately 80% of the equity markets,” she said. “A lot of banks are coming out with community benefit plans that lean heavily into affordable housing. It’s been a very visible priority and commitment at KeyBank for years.”

This article was produced in collaboration between KeyBank and Studio B. Bisnow news staff was not involved in the production of this content.

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