And unlike the frozen credit markets of 2008, the current scenario “is more akin to a confidence crisis that will pass,” commented Tower Capital Principal Adam Finkel. “The situation is expected to calm down, stabilize and reveal a market that is fundamentally in a better spot than previously.”
Other differences between then and now are that banks, for the most part, set aside more capital for reserves than they did before the Great Financial Crisis. They also require more equity when issuing loans. On the other hand, with banks tightening lending standards, especially for commercial real estate borrowers, those borrowers went to other financing sources that weren’t as prevalent in the late 2000s.
“Investors turned to bridge lenders last year when they discovered debt capital funding was unavailable elsewhere, as the ultra-low interest rate environment disappeared,” said Gary Bechtel, CEO, Red Capital holdings.