Q2 Market Update: Lender Insights

Q2 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:

The remainder of 2023 is being hyped by many as the “Year of the Life Co.” Simply put, they are in many ways immune from the pressures other lending sources such as banks and credit unions are experiencing post-bank fallout. This is not to say they haven’t adjusted in any way to the market, but they don’t anticipate any meaningful decline in business as banks do just because of the differences in “behind-the-scenes” dynamics. They also don’t ask for deposit relationships, as banks do, and they certainly won’t be increasing the minimum deposit relationship required to do a deal. Spreads above the corresponding treasury have generally been between 180-220 (over the 10-year, for example) with pricing add-ons for things like flexible prepayment penalties, interest only, or some other feature considered to be slightly outside of the box. All-in rates range from mid-5% to the low 6%.

There are obviously exceptions to general guidance, especially if a Life Co wants to win a particular business. Terms range anywhere from 3-30 years with several fully amortizing options. Life Cos can still go nationwide and generally are chasing industrial, specifically multi-tenant, and apartments. Retail has rebounded quite nicely from the lull the market experienced during the COVID-19 pandemic when most retailers were shut down. There is an emphasis in this sector of the industry on grocer-anchored retail. There is perhaps a handful of Life Cos willing to do office deals, but it must be the “right” deal which is an increasingly subjective term in this market – low leverage, maybe for a pre-existing borrower, with relatively longer remaining lease terms in excellent locations. Some of our Life Cos are already verifying that the hype is real as they are on pace to far exceed their 2023 allocation goals.

Jonny Soleimani, Vice President


In the wake of the highly publicized failures of Signature Bank and Silicon Valley Bank in March, there is currently quite a bit of caution amongst bank lenders who rely in large part upon the deposits from their customers to maintain their reserve positions. As some depositors move their accounts to the largest banks that they perceive as more secure, those lenders experiencing outflows are subject to pressure and the cost of borrowing from the Federal Reserve to maintain liquidity continues to grow.

In this environment, a growing number of bank lenders are refocusing on lending only to their existing clients, are requiring a meaningful depository relationship as a condition of any new business, or have gone to the sidelines entirely as they concentrate on loading their balance sheets with cash to reassure investors and depositors.

For banks that remain active, there tends to be an increased emphasis on borrower strength and potential for a relationship, and credit committees are taking a harder look at new requests as they moderate their lending volume. Most of the remaining appetite is focused on multifamily and industrial products both for construction and permanent financing.

Lending programs at the banks have become very dynamic as priorities and mandates can change rapidly, and this is exactly the kind of choppy market where working with an experienced professional with access to real-time market data can be so valuable in helping locate the outlier lender with the best program for a particular request.

David Sarnoff, Vice President

Credit Unions:

Credit Unions are still an attractive financing option primarily for those that are not opposed to what is usually recourse lending but with no prepayment penalty. Given market volatility, there is excess demand for shorter-term money so that borrowers don’t find themselves locked into a long-term loan in case rates eventually drop further. A no-prepay penalty credit union can be an excellent alternative for borrowers that want both a longer term, and no prepay and are having trouble finding lenders willing to put out shorter term money, even though the rate is higher because of the yield curve inversion we’ve been experiencing. And if rates don’t drop, they have the benefit of having locked the rate for a longer term.

Although Credit Unions are still chasing industrial and apartments just like everyone else is, there are certain retail deals they will stretch on. However, unlike other lenders, there is a tremendous emphasis on the strength of the borrower, determined through heavy global cash flow underwriting which measures all their income against all their debt (in a nutshell). This has always been the case, but even more so in an unsteady market like this. Rates are generally in the high 5% – low 6% range, but there is more variance here than with other types of lenders. Sometimes a credit union can be slower to adjust to the market and offer rates lower than what can be found elsewhere. Other times they may get ahead of what they perceive as risky conditions and offer rates wide of where the market is.

Jonny Soleimani, Vice President


In parallel with the overall market, agency leverage, and rates have gone up and down several times this year with the largest increase of 50bps following the SVB news. Agency spreads over the US treasuries range from 170bps to 235bps depending on size, leverage, affordability, prepay flex, etc. While leverage of 75-80% LTV is still advertised, loan proceeds are limited to DSCR covenants of 1.25x given current interest rates. Agencies are seeing a lot of construction take-out loans as developers try to avoid cash-in refi’s coming off their construction loans. Average loan size is up quite a bit in 2023 with an average loan size of $18.0M vs. $11M in 2022.

Recently, Fannie Mae has been looking at $2 Billion per week in loan volume.  The increase is beginning to tighten pricing waivers for conventional/market rate deals.  Full-term IO requests only costs +1bp in the rate.  Freddie SBL has seen a steady increase in volume, more so on the East Coast, so Agencies are expecting longer queue times that can cause delays in acquisition financing.

Grady Seldin, Vice President

Debt Funds:

Like many lenders, debt funds are managing the market’s expectations on rate while dealing with increases to their own cost of capital. Debt funds remain an attractive financing source that can deliver higher leverage than their conventional competitors and scenarios wherein the ability to close quickly is worth the premium. Generally speaking, the list of fixed-rate debt funds has shrunk over the past several months. Interest in floating rate debt has significantly declined, especially as the cost of rate caps has risen along with the rates themselves. In today’s market debt funds are a viable solution for office refinances, especially for those retiring high leverage CMBS debt. Debt funds are also an option for those coming out of construction with pre-stabilized multifamily opportunities that want to reduce their cost of capital and don’t want to wait for the 90/90 requirement of traditional agency financing.

Jacob Lee, 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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