Lenders Believe Real Estate Most Prone to Distress This Year
Meanwhile many are convinced inflation has been tamed.
Real estate and REITs are the industry sectors most likely to experience distress in 2024, according to FTI Consulting’s 2024 Leveraged Loan Market Survey.
Two-thirds of respondents cited these categories first, compared to 48% in 2023. Retail fell to second on the list, followed by healthcare, which has been in the top three for the past two years.
The survey offers insight into bank and non-bank lenders’ perspectives on the US loan industry and highlights expectations for leveraged credit market conditions in the year ahead.
Chuck Carroll, a Senior Managing Director and Leader of the Senior Lender Advisory practice at FTI Consulting, said that many respondents said they are convinced that inflation has been tamed, a recession has been averted and earnings growth was set to resume.
Carroll said that the findings in this year’s survey “point to more tempered enthusiasm, with the continuation of high interest rates and lingering economic uncertainties lowering respondents’ expectations for 2024.”
The survey fielded 250 responses.
Two-thirds of respondents (67%) said the inflation rate will exceed 3% by year-end, above the Fed’s target and 46% of respondents believe that persistently high interest rates despite easing inflation are the most underestimated risk by financial markets in 2024, at least double the rate of any other response.
Dave Katz, a Senior Managing Director in the Senior Lender Advisory practice within the Corporate Finance & Restructuring segment at FTI Consulting said in prepared remarks, “It’s clear, formidable challenges remain before the economy and markets are truly free to run,” Dave Katz, a Senior Managing Director in the Senior Lender Advisory practice within the Corporate Finance & Restructuring segment at FTI Consulting said.
More encouragingly, about half of respondents said that the probability of a US recession is minor compared to last year when only 29% had this view.
Meanwhile more respondents said that ESG considerations fell in importance this year compared to last.
The leading indicators of the U.S. economy fell in December for the 21st month in a row, but a widely predicted recession still appears no closer than when the long losing streak first began, according to The Conference Board this week. The index slid 0.1% last month – its smallest decline since the index went negative in March 2022.