Key Lending Trends for Commercial Real Estate Investors in 2024

Aviva (00:00)
This week's listener of the week is Adamit Adam. Adam, thank you so much for leaving us a five star review. And for those of you listening, if you leave us a five star review below, you might be next week's listener of the week. Week.

week. This week on Commercial Real Estate Secrets, we have Sanat Patel. Mr. Patel is the Chief Lending Officer and Co -Founder of Avana Companies. Thank you so much for being on the show today.

Sanat Patel (00:34)
Thank you for having me, I'm looking forward to it.

Aviva (00:36)
Likewise, so Mr. Patel, if you don't mind telling the audience who you are, where you come from and what you do.

Sanat Patel (00:46)
Sure. As Aviva said, my name is Sanat Patel. My role is the Chief Lending Officer of Avana Companies and a subsidiary of Avana Capital. My role is to help borrowers attain their financial objectives in the projects that they're looking to develop in commercial real estate space, whether it's to acquire a piece of property or to build a piece of property. My role is to figure out what they're doing and make a lending decision so that they can attain their project.

Aviva (01:15)
How long have you been in the lending industry?

Sanat Patel (01:19)
I'm gonna date myself by saying this, but I've been in the lending industry for 30 plus years and enjoyed every bit of it.

Aviva (01:26)
Has it always been commercial?

Sanat Patel (01:28)
It has always been commercial since, I think for the first, but the first two years was consumer banking. But after that, it's always been commercial.

Aviva (01:37)
Okay, so you've seen quite a bit if you've been doing commercial lending for a few decades now.

Sanat Patel (01:46)
Yes, I think I've gone through cycles, quite a few cycles myself. And at each one, you kind of take a step back and you go, didn't see that one coming. But then you kind of learn from each one and you kind of say, this one goes in the books. So for me, it's always been approaching this industry, the commercial real estate industry as saying, never think that you've got it down science to the T, understand that it's always a learning industry.

Aviva (02:17)
commercial real estate is a very humbling industry that way because it's like you said, well, there's no rule book. There's no playbook. You try to practice ethics, but you're at the whim of so many variables that you are completely out of your control. You're just along for the ride and hope to learn from your past mistakes and from the past and apply it to the future and.

Create wins for everybody ahead. So I have here that you have a looking back to look ahead approach to market analysis. Can you share some color and light on that?

Sanat Patel (03:04)
Yeah, I mean, having gone through three decades of being in this industry for three decades, you have to look back to see what signs can you look in this present today were relevant in the past. And if you can identify those signs and then say, OK, what happened after that? Then you are able to say, OK, this with some degree of certainty, this could happen. And then.

In the present day, you look for all those things that happened in the past. Okay, this happened, this happened. To what degree of variation was it more relevant or not relevant? And then hopefully with that, you make good decisions. That's my approach is always look back, but look forward and learn from the past to get ahead.

Aviva (03:54)
Can you share some light on the current lending environment that we're experiencing in 2024?

Sanat Patel (04:00)
Yes. Well, you know, let's just take back like a couple of years. We went through low interest rate, a pandemic that was then followed by some mass expansion in the economy, with the government pouring a lot of money into the economy. And now we have inflation pressures. So when you look back, when I look back to the prior century,

where which part of the decade, which part of that century affected that, you know, was it in the sixties, the seventies or the eighties kind of thing. And you learn a little bit from each one of that. And then so in the current environment, you have inflation, you have adjusting real estate prices, namely office assets are being repurposed. Hospitality is doing great multifamily. There's a housing shortage. There's an expansion that you assess.

what happened in the past that resembled that today. And that's how I make a decision. So there are certain areas and certain segments of the commercial real estate industry that we like to be in because of the fact that we feel they're demonstrating signs of growth in spite of inflation today, or they're at a point where they're going to grow. And so that's what we're focused on, those markets that we're heading into.

Aviva (05:22)
What are some markets that you are enthusiastic about lending on right now?

Sanat Patel (05:29)
from a geographical perspective, you know, we look at the markets that are experiencing growth in terms of migration. So, you know, you look at the smile states in the US basically, which is a southern stuff, you know, from the north east to the southeast, north, sorry, northwest to the south, the northeast in that way through a smile of the USA map, you kind of look at those markets that they're experiencing. They've got companies that are growing demographics, people wanting to move into the markets, whether it's

depending which age of the demographic you're looking at. That's what we're looking at and seeing that and those markets are desiring services such as hotels, apartments, office buildings, restaurants, things like that. That's where we're getting, that's the markets we're going after. So the smile states I would say it's a great way to look at it.

Aviva (06:19)
Hmm. I read an article this morning about these two stunning office buildings, maybe five minutes from my house, that were sold in March of 2020, that are now being foreclosed on. What, if you had a crystal ball, do you predict to happen to the office market in the next 10 years?

Sanat Patel (06:46)
The essence of your question is if I had a crystal ball, I don't, first of all. So whatever I say is my own opinion of this. Office assets were darling off the commercial real estate market the last decade. However, the new paradigm for work is work from home, work remotely, work hybrid, whatever companies are using at this point. And the...

Aviva (06:50)
Thank you.

Sanat Patel (07:15)
the new age worker is demanding a lot more than I've got to show up in the office to do that. Okay. So office assets are going to be looked at as saying, how are they essential to what, to where they are, to where people are living? What other services do they provide as part of that mix? So I think office is going through this repurposing or re -enter, re -

branding itself into something that's not just office as you and I may call it today. It may be more of a hybrid of office and other services, other parts of it. So that's where I think office is going to go. We are gonna need office spaces for sure. But I think a good chunk of that when you go outside in the periphery markets, you're gonna see some of that.

Aviva (08:05)
It's so funny. It's like...

some point between 2020 and 2021. It was retail's dead. We overbuilt retail, you know, retail, retail, retail. And now 2024, office is dead. We overbuilt office, retail, retail is thriving. You know, there's still a little excess of big box retail and shopping centers. But I just think it's so funny how...

Sanat Patel (08:19)
Yes.

Aviva (08:41)
obviously the media does what the media does, but then how soon we forget the fear mongering and just these trends in the news, it's just fascinating. And, you know, I like to talk about it because I want to be able to look back on this in 10 years and laugh about what the next,

asset class that is dying. But like I always say, don't pull out your tissues for most of your local landlords. Hopefully they haven't, you know, hopefully they're not over leveraged. Now, speaking of leverage, how do you assess your buyers or excuse me, borrowers? How do you assess your borrowers?

Sanat Patel (09:36)
Before I answer that question, something you had said, you know, when they started the conversation, we had commercial real estate is one of those industries that the variables change on a daily basis, if not monthly to yearly. So you have to be attuned to that. Keep that in the backdrop of your mind as it relates to assessing borrowers. So you have to look at borrowers very much like how have they weathered the storm? How have they gone through? What is their experience in looking back?

so that they can look ahead. So often when I sit down with a borrower, my first questions are, tell me about your experience and please don't leave out the good details and the bad details. Because you can, you know, most borrowers will give you the rosy picture, but you also want to know the thorny picture as well to say, hey, what lessons have you learned along the way? So what I'm looking for when I meet with borrowers in leverage or anything is assessing their experience and

how they've weathered changes in the market. Because that tells me their ability to how they'll adapt on a go -forward basis. Because I'm making a lending decision based on data from the past with some information about some predictions of the future and saying, but I'm relying really on their behavior in the past to assess how they'll behave in the future.

Aviva (11:02)
So let me ask you, how do you mitigate your risk in understanding a person's capabilities?

Sanat Patel (11:11)
You know, you ask you ask them about the the things that they've not been successful at and why what were the Circumstances that led to them not being successful and and at the end of the day, it's it's an assessment of character because you know and In commercial say the asset will pay me back or will be the collateral I'm security against but it is the borrower the guarantor that is going to sign the check or authorize payment out of their bank account

So I'm making that assessment that their ability to say, I have to make this obligation good. And that's what I'm looking at.

Aviva (11:49)
Wow, it's super interesting. Are you finding that any, are you finding an uptrend in foreclosures or are you seeing an uptrend in issues in your environment in the lending space or?

Sanat Patel (12:11)
You know, knock on wood, we've not had we've not experienced distress in our portfolio. And I mean, knock on wood. And that's that, you know, that makes me lucky today. But I also am looking at because if a borrower picks up the phone tomorrow and says, I have this problem because a large tenant moved out or something like that, then how do I plan for that? And how do I assess that with the borrower? So I've not seen it personally in our portfolio. So and that's I'm thankful and bless my own.

thank the gods for that. But I have noted signs, you know, the you've you've seen what you've read in the papers that I've read to see NBS delinquency rates have gone out the, the, you know, the, the level of office foreclosures and gone out and things like that. But you know, we've been blessed that we've not seen that in our portfolio. And we've got a spare, we've got a pretty diverse portfolio. But we've also niched into certain asset classes that where we get to know our borrower.

and do that character assessment that I explained to you before, which is a little bit more deeper dive. And that in that, you know, the hospitality industry, for example, has allowed us to do that. And we've been very successful in that.

Aviva (13:22)
Hospitality is an amazing industry.

Sanat Patel (13:25)
It is. It definitely is.

Aviva (13:28)
So, say you were a new commercial real estate investor, what advice would you on the lending side have for them when looking to buy an investment?

Sanat Patel (13:34)
Mm -hmm.

Are you ready for the long -term? Because commercial real estate is not for the faint -hearted. It's going to be up and down cycles. And are you looking at this as a quick money situation? Because if you are, this is not the industry to be in. If it's something for long -term gain in asset value, this is the industry to be in. Because real estate will always go up.

but it will go through its cycles before it gets to that level you want at the end.

Aviva (14:16)
Yeah, it's so funny. In 2024, listening to perspective, everybody can be an investor now because of the internet and our access. And what a long -term hold is to Peter might be different than a long -term hold to Paul, right? Like my family...

Sanat Patel (14:30)
Yes.

Aviva (14:45)
we have owned commercial real estate since the 60s, since my family came to America. And the whole point was buy hold, never sell, long term, multi -generation. And that's, it works. But then I see on the internet, you know, to some people, a long -term hold is six months. And it's just so funny to...

understand different interpretations of the modern investor because my reality might not be your reality. But it's like you said with commercial real estate, my father who's a mentor of mine always said, all you have to do is nothing and the longer you can wait, the more you can extract. So.

I think that's really great advice for the listeners.

Sanat Patel (15:43)
I think that you just came up with a great quote, wait and you will win. You know, at the end of the day, that's the message really. And that's the message I would tell any commercial investing investor starting today. You know, you're right. You've pointed at your phone that everybody can become a commercial access commercial investor because of access at the same breath. The ability of technology has made people think that that

Aviva (15:48)
Yeah.

Sanat Patel (16:10)
It shouldn't be long term. It should be six months or three months or nine months. But it's tested that and your father's a testament of that, as you said. Don't do anything and the longer you can wait, the more you will win. You know, that's what I would tell it. That's the same advice I tell investors. Are you in it for the long term? No different.

Aviva (16:34)
Yeah, yeah, it's definitely not instant gratification, but it can be gratifying.

Sanat Patel (16:39)
It definitely is gratifying when you see the values go up, when the cash flow is good and all that. But understand, there's another side of that too. And that's the set down cycle. And you have to be ready for that and plan for that and hope it never happens, basically.

Aviva (16:57)
Yes, love it. So, Sanat, what makes you happy with what you do in commercial real estate and lending?

Sanat Patel (17:02)
Yes.

Now, let me give you a brief story, and if you just humor me for just a second. This is a hospitality property that was. We were brought in to help a borrower build a property in central California. Unfortunately, this individual's father passed away several years back. And when him and I started talking, we started talking about our fathers, our respective fathers, and mine had passed away a while back as well.

And we just exchanged stories. And I told him, this is what my father had said to me about, you know, helping borrowers achieve what they want to do and not making it about profit, but making it about their family and their legacy. Your family, you said your father immigrated in the sixties. Today it's there because I'm sure along the way some bankers or some folks helped him along the way. That's the legacy that that's the thing that gives me happiness with this borrower specifically.

I remember when he opened the property, he said, this was my father's dream and you helped me make it a reality. To me, that was that, you know, that put me on cloud nine completely, because that to me was the reason I do what I do and I get up and do what I do in the commercial estate industry every day. So I look forward to doing for many, many years more as well. So that's what makes me happy.

Aviva (18:27)
Hey, I believe in the American dream and it's cool to help others discover their own interpretation and find their own dream. So, yeah. Sanat, where can the listeners contact you or follow you or find you if you so dare?

Sanat Patel (18:35)
Yes.

Yeah, absolutely.

Sure. Sure. I'm accessible on LinkedIn. I am. They named Sanat Patel's there. I can be found on our company's website, which is www .avanacompanies .com or www .avanacapital .com. And then separately, if they want my office line, I can give it to them on the phone if you want me to on this web if you want. But it's it's 623 -878 -0258.

Aviva (19:22)
Mr.

Sanat Patel (19:22)
I'm open to help you achieve your objectives.

Aviva (19:25)
Mr. Patel, thank you so much for being on Commercial Real Estate Secrets and for everybody listening, we'll see you next week. Yeah, thank you.

Sanat Patel (19:33)
Thank you so much.