Q3 Market Update: Lender Insights

What’s happening in the capital markets? We connected with our lending partners to bring you up-to-date insights across the lender landscape—from life companies to banks and everything in between.

Life Insurance Companies

The early weeks of the 2nd Quarter brought some of the most volatility we have seen in the markets in years. The subsequent response from most of the Life Company lenders was to raise spreads – nearly a 30-basis point spread increase took place in the first weeks of April. What followed was a prolonged game of “wait-and-see” as markets have now settled and spreads are once again tightening back to March levels. To the credit of the Life Companies, they remained in the market through the most turbulent days, and many were rewarded with a glut of business. The month of April, in particular, served as a stark reminder of the value of certainty of execution.

In the best of times, the Life Companies can often boast of the best spreads and rates. In the worst of times, the Life Companies can boast of the greatest certainty and reliability. April will be remembered for that later statement. Now, as we have found calmer waters in the middle of May, we are once again rolling up our sleeves and competing on pricing, with spreads ranging from 125-175 on core business. The re-emergence of various bank lenders has added to the competitive landscape, but it doesn’t appear that spreads have much more room to drop from here. With June just around the corner, keep in mind that allocations are narrowing for 2025, and the prospect of more limited capital won’t make rates go down.

-Seth Ludwick, Principal

Debt Funds

The Debt Fund segment of the market continues to grow with new sources and existing lenders raising new funds to deploy capital. The liquidity in this segment of the market not only provides borrowers with options but also competitive pricing. For transitional assets with limited to no cash flow, pricing generally starts at S+425 with modest leverage. The next tranche of pricing starts around the 70% loan-to-cost (LTC) barrier, and pricing then jumps up by 75bps-150bps. For those with going-in cash flow near breakeven and stabilizing to standard refinance metrics, pricing has improved significantly. Since the start of 2025, spreads have come in +100bps or more for cash flowing deals that have a mark-to-market opportunity in the rents with a limited renovation plan. In some cases, spreads are in the low to mid 200s with limited structure. In scenarios where the basis is being reset and the asset requires a heavy lift, there are lenders willing to take the risk, but the pricing is reflective of the risk and can be as high as S+600.

Debt funds are often a go-to lender for rescue capital opportunities, especially in markets where rents have softened that were previously experiencing above-average YOY growth. Debt funds are also a viable option for borrowers who want to have the flexibility to re-engage the market for permanent debt in the short term, as most 5-year fixed-rate loans include a degree of call protection. Overall, Debt Funds remain a liquid part of the market for financing options on transitional assets, non-recourse ground-up construction, conversion projects, and for those who want flexibility in the short term.

-Jacob Lee, Vice President

Banks

Banks seem cautiously active despite the market volatility. Most of our bank deal activity is centered around apartments, but they seem just as active in quoting industrial, retail, and even office. It feels like banks, amongst other capital sources, have figured out how to stabilize operations amid all the market volatility.

What feels different at this point is how banks are pricing. Although this does not speak to every single bank, we’re seeing more pricing based on SOFR rather than Treasuries. Part of this may have to do with their forward-looking rate projections. Many banks are also actively quoting swap deals for the same reason–a quiet but consistent consensus that the downward pressure on rates will eventually prevail with the current administration.

Deposit requirements can vary and depend on the bank itself, and somewhat on the deal and sponsor. Generally speaking, they want at least the operating account. Oftentimes, there are levels of restrictions along with deposit requirements. Some banks want a percentage of borrower deposits held with them throughout the life of the loan. We’ve heard from others, “until the end of the year,” “the borrower can take the deposits out as soon as the loan closes,” and some don’t even require deposits.

Five-year money seems to be a borrower’s preference these days. Rates are reasonable enough in their relative view that it makes sense to take out fixed-rate debt for at least five years. On the other hand, five years is a short enough duration that if rates do drop dramatically, they are not locked into something for the long haul. Bank prepayment penalties vary, but the most commonly found is the “stepdown” prepayment penalty. For example, 5% of the loan amount in year 1, 4% in year 2, etc. Non-recourse can be available in certain circumstances, and amortizations are between 25-30 years for the most part.

-Jonny Soleimani, Vice President

Credit Unions

The credit unions are active and a formidable source of financing for those seeking maximum flexibility. Most credit unions continue to offer no prepayment penalties for the duration of their loans, and some are offering interest-only on the front end to compete with bank lenders offering 30-year amortizations on commercial properties. Credit unions also remain transactional for the most part, without the depository relationships being sought by many of their bank competitors. For operators with stabilized properties who believe rates will come down in the next few years, or who have pending lease renewals or rent increases, the execution of which might give them reason to sell or refinance, the ability to take a five-year loan with a few years of interest-only essentially gives them a low-cost bridge execution with the security of a couple additional years of amortizing term in case interest rates don’t cooperate and/or they ultimately decide to hold on to the asset for the long term. Credit unions are typically recourse lenders, but the availability of partial and even non-recourse structures in some cases is becoming more common. Credit unions continue to exhibit an appetite for all primary property types, but like most lenders these days, the current focus is on multifamily, retail, and industrial assets. While credit union spreads tend to trend to the upper end of the core range, their ability to offer flexible structures and execute on B/C-quality assets makes them an attractive option for borrowers who might not be seeing love from the low-price leaders and/or believe borrowing conditions will improve in the near to medium term.

-David Sarnoff, Vice President

Agencies

Agency lenders remain active and competitive in the multifamily space. Fannie Mae and Freddie Mac are quoting fixed rates between 5.55%–6.30%, with better pricing for low-leverage deals, strong sponsors, and affordable housing components. Floating-rate options are available, though spreads have widened slightly.

Borrowers continue to use rate buydowns (10–25 bps) to improve cash flow. Both agencies offer interest-only, flexible terms and non-recourse execution, with Freddie targeting smaller deals under $7.5M through its Optigo platform.

With $73B in lending capacity per agency and a focus on mission-driven lending, agencies are a key capital source, especially as the spread over bank debt widens. Many borrowers are refinancing maturing loans and locking in long-term debt ahead of expected rate cuts.

-Tony Messiah, Vice President