Q3 Market Update: Lender Insights

Q3 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:

Life insurance companies still possess the best capital available in the market going into Q3 as they are immune to increased regulatory restrictions that banking institutions have faced, have zero deposit requirements, provide predominantly non-recourse loans, and are most importantly, still actively lending across all asset classes. With banks, credit unions, CMBS, and other capital sources either on the sidelines or providing quotes with less leverage, higher rates, and more red tape, life companies enter the Q3 with full pipelines and plenty of capital remaining in 2023.

The biggest challenge life companies face is generally internal with their bond departments. Life Co’s invest in an array of income-producing investments such as bonds and commercial mortgages providing long-term fixed income to match against their long-term liabilities (i.e. annuities, life insurance, etc.). The yield on investment grade bonds, a rating of BBB or better, has increased to over 5%. As such, commercial mortgages need to price around 50bps wider due to the additional risk compared to an investment-grade bond. As such, most coupons wind up being locked in the 5.75% – 6.35% range depending on asset type, leverage, location, etc.

Industrial and multifamily assets continue to be the golden child as these deals achieve spreads in the 170-200bps over the US Treasury. Stabilized self-storage assets are a lender favorite with pricing similar to multifamily and industrial. The resurgence of retail financing continues to dominate 2023, with pricing generally in the 190-225bps range for strip retail and slightly lower for grocery-anchored centers. Office assets remain a challenge for every lender but Life Co’s are quoting the “right type of office” at wider spreads of 210-240 over the treasuries. The ideal office assets have granular rent rolls, smaller suites, suburban locations with very strong sponsors, pristine occupancy history, and lower leverage in nature.

Fixed-rate deals from 3-30 years are available but allocations for short-term money (3-7 years) and flex prepay filled up quickly in the first half of 2023. There is plenty of liquidity available for terms of 10 years or longer heading into Q3 through the end of the calendar year.

Grady Seldin, Vice President


The bank world is completely flat right now. It seems that there are only a handful of banks doing business right now. Many of them are focused on chasing depository relationships or servicing existing clients. This pertains to permanent, bridge, and construction financing. Recommended depository relationships used to be 10%-15% of the loan amount. These days banks are looking for double that number, on average. Some are asking for even more.

Rates are generally somewhere in the 6’s. Multifamily and industrial are still the preferred product types, but banks that have historically serviced other property types will conditionally lend on them as well – retail, mixed-use, etc. There are generally two types of banks in the marketplace right now for permanent financing. There are those that price term loans with a spread over the corresponding treasury (i.e. a 5-year loan is priced over the 5-year Treasury, 10 over 10, etc.), and there are those that price over WSJ Prime. Prime-based lenders aren’t really interested in making loans right now. Some of them have stated that they are doing so well after putting out so much variable-rate debt 2-3 years ago that they are content to not make any loans for the foreseeable future. Lenders that are quoting a coupon or a spread over the corresponding treasury are still somewhat active, but their spreads remain between our Life Co’s and the credit union world, which is generally priced from the mid-to-high 6% range all the way into the 7’s in many cases. Most of them are adamant about some type of significant depository relationship and heavy scrutiny of both the borrower and property.

The bank world just isn’t very active right now and probably won’t be for the foreseeable future until the dust settles from all of the recent rate hikes. Here and there, a local bank will do a “favor” loan for a client who has significant deposits held with them, but their credit and lending boxes in general have significantly tightened. This is exactly the type of market that suits us well. The majority of commercial loans nationwide are with banks. We’re seeing a lot more loan requests, with varying degrees of speculative scenarios, than we did in the first half of 2023 because borrowers are looking for alternative lending sources which we can provide. It always helps to have our fingers on the pulse of the market.

Jonny Soleimani, Vice President

Credit Unions:

Credit Unions can be a good option for a loan on commercial properties depending on the borrower’s long-term investment strategy. A benefit of credit union financing is its usually fixed-rate loans that have no prepayment penalty. The flexible prepay structure of credit unions can be a great option in this current lending environment where we have seen a substantial increase in rates and can allow the borrower to refinance anytime they want when rates go down.

A caveat to credit union financing is that the debt is usually full recourse to the borrower. Credit Unions usually underwrite a full global cash flow analysis on the borrower rather than just underwrite the property itself for loan approval. This means there will be additional paperwork to fill out on personal assets including tax returns rather than just concentrating on approving the property itself. This may be a deal breaker for some borrowers as the approval process can be strenuous and take longer than expected and sometimes the loan might not get approved.

Most credit unions are currently underwriting to a minimum of 1.20/1.25 DSCR at a max loan to value of 50-75% on a 25/30-year amortization depending if the asset is retail or multifamily. Most credit unions are priced over the Constant Maturing Treasury Index and rates can be anywhere from 5.75% – 6.75%. All these underwriting metrics are subject to borrower strength in terms of net worth and experience level as well as location and the quality of the property.

Tony Messiah, Vice President


Similar to the market as a whole, the agencies are behind on their annual production goals. Freddie is making a concerted effort to generate business by adding an additional year of interest-only, bringing it up to 2 years. They’re also providing borrowers with 35-year amortizations if the property is considered mission-driven. In general, Freddie’s spreads are very competitive at +180, and can continue to give discounts to the spread if it’s mission-driven. Fannie is heavily focused on mission-driven properties and deals that qualify for federal housing goals. Otherwise, Fannie has been less competitive with spreads hovering around +200.

Jacob Lee, Vice President

Debt Funds:

Debt funds continue to play an active and important role in the financing market with a focus on ground-up and value-add construction, bridge, and increasingly, rescue capital for properties suddenly thrust into transition due to some combination of shifting consumer preferences, rapid increases in their cost of capital, or a softening of rents in some markets. Their ability to craft bespoke structures, close transactions quickly, and provide higher leverage continue to make debt funds an attractive albeit expensive option for an increasing number of borrowers.

Multifamily and industrial projects continue to attract the most interest for construction financing and while many program guidelines will allow for loans of 80% of cost or more, stabilized debt service requirements are generally constraining the proceeds. Still, debt funds typically offer the most proceeds of any lender type and notably don’t have the depository requirements that most of their bank competitors have adopted and which in effect lower the overall leverage of those offerings.

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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