Sara Havlena
Bank lenders will be active throughout the rest of the year, although they will heavily scrutinize the borrower, market and property type.
“While deal volume may somewhat slow, we will still have plenty of loan options as lenders still have plenty of capital,” said Paul Ahmed, senior vice president at CBRE.
Ellen Comeaux, senior vice president and commercial division leader at TIAA Bank, said they are expecting that the market mix will shift from primarily refinance in the first half of 2022 to more balanced with refinance and acquisition for the second half.
“We expect an overall reduction in market activity as investors are approaching the rising rate environment cautiously,” Comeaux said. “We expect multifamily to continue to be the dominant asset class, but we are seeing a resurgence in finance activity in retail.”
Banks will be looking to better balance the risk/return equation and stress residuals to minimize refinance risk, she added.
Thad Gabron, senior vice president and senior director of finance at Associated Bank, said the market continues to be robust in spite of economic uncertainty.
“That being said, while we still expect strong demand, uncertain economic conditions could lead to less overall growth in the second half of the year compared to the first,” he said.
Underwriting is stable, but interest rates have risen substantially, which affects loan proceeds.
Ahmed said he does not think underwriting will change significantly. Banks may decrease their expectations for multifamily rent growth given significant rise in rental rates over the last few years.
Benjamin Kadish, president at Maverick Commercial Mortgage, said the major money center banks are slowing down and switching focus toward existing clients.
“They all are looking at the high end of the market and leaving the middle market to the smaller players,” he said.
Ahmed added that big banks will be focused on high profitability given low loss reserves, higher interest rates and lagging interest payments to customers on deposits.
As the government raises interest rates, lenders will follow suit. But with the sharp increase over a relatively short period of time, borrowers are experiencing sticker shock and are not jumping to lock rates.
“For the rest of the year, fixed rates are beginning to trend downward, which will make it easier to refinance existing loan amounts but does not return any cash equity to borrowers. This is expected to have a continued slowing effect on loan demand,” Kadish said.
Borrowers will see tighter underwriting. Debt yields are increasing, which is causing an overall reduction in how much the bank is willing to lend.
“We expect to see lower loan-to-value (LTV) requirements, as the banks are still looking for debt coverage,” Kadish said.
When it comes to construction loans, banks will mainly target industrial and multifamily projects.
Kadish said to watch for banks to lower advance rates and increase interest reserves on construction and bridge loans to help deal with rising interest rates. Construction loans and shorter-term loans meant to stabilize an asset carry much more inherent risk. When it comes to construction loans, the most important factors will be the developer, guarantor and then the real estate. Banks will seek deals in the Sun Belt cities with great weather and low state income tax rates will continue to attract people in droves.
“Pretty much all of South Florida is considered a hot market by our local and out-of-town lenders,” Ahmed said. “Florida has the advantage of population, job and income growth.”
