Sara Havlena

Count on bank lending to remain conservative and cautious throughout the rest of 2024. Bank lenders are awaiting further guidance from the Federal Reserve regarding rate cuts and the upcoming election, which should provide more clarity on the direction of the market heading into 2025. The cost of capital will continue to put a damper on lending activity. Some banks with dry powder are seeing the disruption as an opportunity to fund high-quality loans with the best borrowers at higher rates. More

There will be plenty of capital market interest in self storage this year, as this is considered a safer asset class. Self storage has continued to be a top-performing property, which makes lenders and investors confident. There has been some overbuilding in certain markets, but new construction is expected to slow in those areas as lenders steer clear of markets that are oversaturated. Underwriting will be more conservative and count on lenders to take a closer look at supply. Borrowers will see lower leverage and higher spreads. More

Look for most of the life companies to be active during the second half of the year as they strive to meet allocations. Total 2024 life company originations will be greater than 2023, although not up to the highs seen in 2021/2022. Life company spreads have come in since the beginning of the year. Debt service coverage ratios will remain tight in the current high-interest-rate environment. Leverage could go up slightly for the strongest deals. Look for life companies to be more open to retail this year, as their portfolios are heavily weighted in multifamily and industrial. They will be aggressive on refinances with low leverage, while cautious with cash-out refinances. More

Equity investing will stay limited until the money-center banks return to the sector and more transactions hit the market. Despite there being an enormous amount of equity capital on the sidelines, JV equity is much more selective. Anticipate a greater interest in pref equity versus traditional JV equity from institutional investors going forward. In times of uncertainty, many investors will prefer pref equity over JV, especially as return demands rise. Investors like the risk-adjusted returns with pref equity behind stabilized deals. Many equity investors are sitting on money, just waiting to see what the economy and rates will look like during the second half of the year. More