Latest Finance Trends

JV and pref equity deals will continue to be difficult for the first part of the year as many investors remain on the sidelines. Rising rates have caused floating-rate debt to be above most cap rates, resulting in negative leverage. Some JV equity providers have shifted their focus to the debt side or will invest as pref equity only. There has not been a lot of acquisition equity being placed and a huge pullback in ground-up development is occurring. However, it is not all doom and gloom. Whispers are that the Fed plans for at least three rate drops this year and once that happens, there will be more activity. More

Hoteliers will see more available hotel construction capital this year. Look for lenders to come off the sidelines and consider hotels once again. With interest rates projected to remain stable or decrease, there will be more deals that will work on a cash-flow basis due to the lower interest rates. The projections for interest rates in the near term will allow underwriting to “work” for more transactions. This will allow borrowers to refinance existing deals that have recently opened. More

In CBRE’s 2024 Real Estate Outlook, new opportunities are predicted that can prove beneficial to both consumers and companies. New buying opportunities are projected to materialize thanks to lowering property values and higher numbers of vacancies. CBRE’s economists anticipate that resilient consumer spending will counter economic headwinds next year including high interest rates and near recessions in Europe and China. CBRE predicts the U.S. unemployment rate rising slightly to 4.5% and an easing of inflation that will allow the Federal Reserve to reduce short-term interest rates to around 4.25% by the end of 2024 and to 3.5% in 2025. More

Overall, the affordable market has slowed in 2023 and all signs are showing that trend will most likely continue through 2024. There will be headwinds within the affordable lending space going forward as owners adjust to the elevated interest rate environment. Next year should be very similar to 2023 in the way of total production of new affordable housing units, total preservation of existing units, as well as total loan volume and tax credit equity volume. More

Watch for bridge lending to gain momentum next year. Borrowers are exploring shorter term debt while rates are high and there is an expectation they will start coming down. Also, watch for people to turn to bridge lending as notes come due and more value-add opportunities hit the market. Bridge lending will continue to pick up momentum as many sponsors will not want to sell in the current cap rate environment and/or lock in permanent financing with today’s high rates. Lease-up bridge loans will become more prevalent. More

Hoteliers will see more available capital next year. Hotels are becoming one of the most financeable commercial real estate asset classes in the market given the positive leverage between cap rates and loan rates, along with continued strong operating performance. Lenders have begun to over-allocate new originations to hotels to make up for the declines in loan volumes elsewhere. This should continue into 2024 unless rates move meaningfully lower or cap rates on other asset classes move significantly higher. More

Look for CMBS lenders to be more active in 2024, especially as there is increased clarity around long-term rates. CMBS volume will also benefit from some of the regional banks pulling back origination volumes. Lending will be a function of pricing and CMBS originations will be challenged due to a lack of trades. An additional challenge will be continuous monitoring of existing debt that is coming due, and lenders will be unable to cleanly refinance out. Negotiations with the servicer will likely continue for years to come. More

Office will continue to be the toughest property to finance going into 2024. The overall tightness in the credit markets will be even more pronounced for office assets. Transactions with big price readjustments and fresh equity will see available financing, although with conservative terms. There has been some return to the office directives from many companies but expect them to reduce rent expenses if the current economic headwinds persist. More

There will be plenty of capital in the market for construction, however, lenders will be heavily scrutinizing deals. Fewer projects, higher rates and regulatory issues have slowed the number of transactions being funded. The high cost of borrowing will also make construction lending more difficult. Banks and life companies will be in the market, although with lower leverage. Watch for more available capital from non-traditional sources to fill the gap. There will be a large number of construction projects that need capital next year. Anticipate lenders being more selective with who they will work with. More

Count on retail lending to loosen going forward, especially for fully leased centers with solid tenants. More lenders will switch back to retail next year, especially as office remains tough to finance. Look for life companies to be the best source, while the CMBS market should pick up in 2024. Banks will actively lend on retail, but will require substantial deposits from borrowers — typically 10% to 30% of the loan amount in deposits. In 2024, retail should be seen as a stronger asset type by lenders, as the property has exceeded expectations in fundamentals and loan performance. More

Life company lending will be in high demand for the rest of the year. Although, many LCs will soon run out of allocations for 2023, so some borrowers might have to wait until Q1 to get deals funded. Anticipate life companies to be the most competitive capital source next year, especially as banks reserve their dry powder for existing borrowers. Life company money will be the most attractive option for many borrowers due to their scale and flexibility of capital. More

Industrial will continue to be in high demand from lenders and one of the preferred asset classes due to the positive fundamentals in the space. Competitive terms will be available for quality assets in gateway markets, operated by strong sponsors. However, look for higher rates and lower leverage. Movement in the underlying indices will impact all-in borrowing costs and total leverage. Most deals will also be debt service coverage ratio constrained. More