Q1 Market Update: Lender Insights

Q1 Market Update: Lender Insights


We believe it is vital to keep our clients informed concerning the major lending sources in the market. We asked a few of our producers in our LA office to call our lenders and provide insight into how these various lending segments are performing in the market. Keep reading below to find out more:

Life Insurance Companies:

As we start 2024, many life companies are looking forward to the coming year with fresh allocations and new goals. In 2023, the demand for short-term Life Company financing (less than 10 years) was higher than in years past and lenders have adjusted in different ways to meet the market. Most LifeCos simply increased their allocation of 3-year and 5-year fixed-rate permanent loans, which can include a step-down prepayment penalty structure. Some have increased their allocations for their existing bridge programs that are typically 65%-75% LTC with a floating rate and can support a considerable value-add component. There are also some LifeCos that created a bridge-lite program, that often includes existing cashflow with a modest CapEx holdback and a 3-5yr fixed rate period.

Generally, the bandwidth of spreads on traditional LifeCo permanent financing has tightened to +200 to +225 over the 10YRT. We have seen spreads as low as +155 to +160 for low-leverage industrial or multifamily in strong markets. Modestly levered retail, including strip, neighborhood centers, and both grocery-anchored and non-grocery-anchored products continues to be very financeable with Life Companies.

Jacob Lee, Vice President


In the current lending landscape, banks are facing challenges with tightening credit; however, discerning commercial real estate investors can still find opportunities with select institutions that are strategically evaluating deals for the right product type. While some banks may require a depository relationship, others do not, providing flexibility for investors.

Banks maintain steady underwriting metrics, with a minimum Debt Coverage Ratio (DCR) of 1.25 and a maximum Loan-to-Value (LTV) set at 60%. Interestingly, if the LTV is lower, investors may benefit from a discounted interest rate. Some banks are even open to a lower DCR of 1.15 and may offer interest-only terms based on factors such as net worth, liquidity position, and the nature of the depository relationship.

Apartment pricing ranges from 5.50% to 7%, while retail pricing hovers around 6.50% to 7.50%, providing investors with a range of options. Banks further sweeten deals by offering step-down prepayment penalties or yield maintenance for a discounted interest rate.

Recourse requirements are common among banks, but for properties with a low loan-to-value, non-recourse and partial recourse options may also be considered. This nuanced approach allows investors to navigate the current challenges in the banking sector and secure favorable terms based on their specific circumstances and the nature of the investment.

Tony Messiah, Vice President

Credit Unions:

Credit unions are projecting a positive outlook for 2024. These financial institutions prioritize cash flow as their primary underwriting tool for both guarantors and property operations. While some credit unions focus on conservative loans for repeat borrowers in the multifamily and industrial sectors, the majority anticipate business as usual in the coming year.

In the interest rate range of 6.50% to 7.50%, leverage becomes a key consideration, as credit unions underwrite to a 1.25x – 1.35x Debt Service Coverage Ratio (DSCR) stressed on a 25-year amortization. Although credit unions have the capacity to lend up to 65% Loan-to-Value (LTV), most deals typically settle around 50-55% LTV due to DSCR considerations.

The preferred asset classes for credit unions remain multifamily and industrial, followed by retail. However, with the right sponsor, recourse, leverage, and location, credit unions are now open to exploring office debt. Notably, credit unions offer a streamlined process with fewer regulatory hurdles compared to traditional banks, positioning them to potentially surpass their performance from the previous year.

Grady Seldin, Vice President


Agency pricing stands out as a dynamic barometer that keen commercial real estate investors closely monitor to gauge market expectations. These agencies frequently adjust their pricing, demonstrating agility by increasing or decreasing rates multiple times within a week. This fluidity suggests a short-term outlook influenced by real-time news, creating an environment where decisions are yet to be solidified. Agencies position themselves as pioneers, promptly aligning their pricing with market shifts.

In contrast to the more gradual rate adjustments of banks, credit unions, and life insurance companies, agencies enjoy the flexibility to modify various elements in good faith, catering to the specific needs of borrowers. The response to many inquiries about agency financing often boils down to a nuanced “It depends.” Factors such as the market, leverage, desired prepayment penalty flexibility, deal size, and interest-only considerations all play a role in shaping tailored financing solutions.

Key principles for agency financing include their ability, in most cases, to provide substantial loan amounts. Moreover, when affordability is a significant component, agencies often face minimal competition. Deals categorized as fully affordable see virtually no competition, while those with a degree of affordability may encounter some rivalry.

Entering an election year marked by uncertainty and hopeful expectations, rates in agency financing have exhibited considerable volatility. Optimal pricing for agency financing, based on observations, tends to hover around +~160 basis points above the corresponding treasury rate, with potential variations ranging up to +~300 basis points. Astute investors recognize the significance of tracking agency pricing trends for strategic decision-making in this dynamic and evolving market landscape.

Jonny Soleimani, Vice President

Debt Funds:

Debt funds are currently seizing the spotlight, stepping in to fill the void left by sidelined bank lenders. This trend is driven by their robust capitalization, with investors actively seeking yield and committing their capital to these funds. Despite their overall strength, some debt funds encounter intermittent challenges arising from legacy borrowers opting for costly extensions instead of refinancing. This strategic choice is driven by the perception that higher rates are temporary.

Notably, debt funds maintain their involvement in construction lending, albeit at lower leverage points compared to previous trends. Market headwinds and reduced competition from other sources enable them to be discerning and cautiously selective in their approach. As the landscape attracts new entrants, the importance of working with an advisor possessing profound market knowledge becomes increasingly crucial. Such an advisor can navigate the complexities, cut through the noise, and effectively match a project with the right capital, ensuring optimal outcomes.

David Sarnoff, Vice President

Feel free to reach out to us with any questions or with any opportunities that you would like to discuss with us!



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