Canyon's Feingold says lender extensions are ending

Three years of lender extensions to sponsors holding out for a rate cut are "effectively ending right now," Jacob Feingold, head of originations at Canyon Partners Real Estate, said in a Commercial Observer report Monday. Canyon reported $2.9 billion in regulatory assets across 23 accounts in its March 28 Form ADV filing with the SEC.

The end of that patience widens the market for opportunistic real estate capital rather than shutting it, Feingold said. "For three years, lenders have been willing to extend and play ball with sponsors who are hopeful there's a brighter day ahead," he said.

For allocators comparing opportunistic real estate debt funds, the difference between bank-workout sourcing and new construction lending determines which bet a manager is actually making. Feingold's version is sourced from bank balance sheets, where forcing action on borrowers produces loan sales and workouts. Robert Schwartz, co-founder and principal of S3 Capital, described the construction-lending version, where "there's been occasions to create incremental yield that offsets the impact of elevated interest rates."

The window to invest opportunistically "actually opens wider when rates rise this quickly," Feingold said, because prices have to adjust, deals under contract start to fall apart, and owners who need to refinance can no longer wait for rates to fall, especially when it is unclear they will anytime soon.

The maturity wall has compounded and grown significantly since 2022, Feingold said. Bank lenders hold most of that maturing debt and, in his account, have stronger balance sheets, a better regulatory framework and greater capacity to absorb a loss. "So they're forcing action on their borrowers," he said.

That cuts against the workout pattern of the last two years, when maturing debt was more often rolled with extensions and preferred equity than sold. If banks that hold most maturing debt take losses rather than extend again, more dislocated loans and properties come to market.

Y. David Scharf, a partner and chair of the executive committee at Morrison Cohen, sees the same window as "just a little narrower, because there's so much capital looking for opportunities." Deals written too thin to handle 25 to 50 basis points of rate movement are now being exposed, Scharf said, and that has made lenders and investors more selective about where capital goes.

"Disruption is a weed whacker — it takes out the deals that were too thin to begin with and creates opportunities for the deals that were built to last," he said. "It changes the nature of the strength of the sponsor."

The 2026 reset explains the pickiness, Scharf said: capital markets expectations moved fast enough during the year that the industry's "Stay alive until '25" refrain failed to turn into "It'll be fixed in '26."

What sets the size of the opportunity is volume: how quickly bank lenders convert extensions into workouts and loan sales. Whether it shows up as discounted note sales or borrower recapitalizations determines how much product opportunistic funds actually get to bid on.