Q4 Market Update: Lender Insights

Q4 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:

2023 has been a great year for many of the life insurance companies who stepped in to provide capital to borrowers who may have otherwise borrowed from banks in the past but now find them sidelined or requiring a significant banking relationship to transact. Rates have marched higher this month in tandem with the treasuries, but for the most part, we are still seeing spreads in the +200-250-bps range for your middle-of-the-road request. Strong and experienced borrowers with conservative requests for good assets can take advantage of tighter pricing that is leading the market. Some lenders that picked up significant market share this year are already looking to 2024 for their closings either because they have invested their 2023 allocations or are working through a backlog of requests.

As 2024 allocations come online, it will be interesting to see where that money prices as mortgage origination departments continue to compete with the corporate bond investors who are seeing attractive yields on that side of the house. Another trend to watch is life company lenders launching new bridge and construction programs in search of yield to keep up with increasing liabilities from their investment and annuity products. That said, life insurance companies seem to be sticking to and even tightening their credit and underwriting standards, which have served them very well since the financial crisis and leave them healthy and active. Overall, life companies remain an excellent and liquid source of capital for deals that aren’t pushing leverage, which is generally debt service coverage constrained.

David Sarnoff, Vice President


Depository issues recently suffered by banks have caused a disconnect in the banking lending sector and have required borrowers to deposit up to 30% of the loan amount to close a loan, slowing down the overall lending process. Banks need these deposits as their loan-to-deposit ratio has become unbalanced due to the high volume of loans closed between 2018-2022. Banks are selective with a particular appetite for construction loans and more conservative on a loan-to-cost basis anywhere between 55-60% of project cost. Terms are anywhere between three to five years and initial interest only through the construction phase but want a highly amortized 20-25 years thereafter to be in a more conservative position with the lease-up risk. Those loans are priced between 8-8.5% depending on location, borrower experience, and overall stabilized value of the asset and where they are on LTC.

William DeFanti, Vice President

Credit Unions:

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 on if the asset is retail or multifamily. Most credit unions are priced over the Constant Maturing Treasury Index and rates can be anywhere from 7.00% – 7.75%. 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.

We recently received a quote from a credit union for a single tenant retail owner user property at 7.64% on a 30-year amortization 50% LTV with a minimum DCR of 1.30 on the property and 1.30 on a global cash flow basis with no prepayment penalties. These are very good terms considering the risk profile of the tenant being owner-user and being a single-tenant asset.

Tony Messiah, Vice President


The agencies are making a push in Q4 to generate momentum to carry into 2024. Although Freddie spreads have gapped out by +5 to +10bps due to recent volatility, they’re pulling other levers to win deals. Whether they need to add interest-only, provide a 35-year AM, or push leverage, Freddie can be aggressive. Mission-driven deals will get the best of everything, LTV, spread, and DSCR. For market-rate products, Freddie’s spreads are approximately +200 to +225. Fannie is more selective in today’s market and not as competitive; however, they’re willing to sharpen their pencils on mission-driven products as well. Today, Fannie spreads are starting out around +210 to +230.

Jacob Lee, Vice President

Debt Funds:

With the continued interest rate surge and decreasing bank lending activity, debt funds are inundated with loan requests for anything from ground-up construction, bridge, short-term perm loans, and rescue capital. Individual lender mandates are wildly different these days, not commoditized and based on the reality of individual lender portfolios and capital sources. Those debt funds able to secure a CLO for an injection of capital are more aggressive these days on terms and asset type with the lowest spread on a bridge/value-add deal in the SOFR + 275 range. Other lenders facing issues in their existing portfolio with overworked asset management teams will be quoting more selectively with pricing upwards of SOFR+700.

The sticker shock of double-digit coupons borrowers face is starting to dilute as a new normal is slowly spreading as cap rates begin to widen, significantly lagging the rise of interest rates. Historically, debt funds underwrite their exit to either agency takeout for multifamily or current perm market pricing for said commercial property. Given the uncertain future for interest rates in the next few years, some debt funds are adapting their exit underwriting strategy to increase leverage and win quality deals with superior sponsors. This might be underwriting to a below-market or agency DSCR or focusing more on debt yield going in and stabilized as if the lender would take back a property, that debt yield becomes an attractive cap rate.

While there are no standard, commoditized terms, and structures in the debt fund market today, we can anticipate this capital to remain incredibly active as there is approx. $1.1 trillion of commercial and multifamily debt maturing for Q4 2023 through all of 2024.

Grady Seldin, 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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