Latest Finance Trends

Expect an increase in available capital for single-family rentals (SFRs) and build-for-rent communities this year. Construction financing will be accessible for strong projects backed by well-capitalized sponsors. There is a big push nationwide toward renting versus buying, which makes lenders and equity providers confident in the space, as this is leading to a significant demand from consumers. Supply has slowed because of financing constraints and less new product has been built over the last few years. More

Retail borrowers will see more available capital as lender appetite will be stronger this year. Many point to retail as a top asset class since multifamily and industrial both face some hurdles. Lenders are confident in the fact that rents have been up across the board. Retail has seen an increase in rents and decrease in vacancies, along with massive demand. There is also limited new supply entering the market. Grocery-anchored centers will continue to see the most attention, although watch for lenders to start looking at other retail properties this year. More

Multifamily lending will be more borrower friendly during the second half of the year as rates start to come down. Lower rates will help spur activity and simultaneously reduce the impact of the large pool of loans set to mature with current rates at least 1.5% below the current interest rate environment. Look for a continued focus on strong sponsors and well-performing markets, with the agencies reclaiming their historical market share levels. While banks and life companies will be some of the most attractive options, CMBS lenders will become more popular because of decreased spreads. More

Expect bank lending to continue on the same trajectory during the first two quarters this year, with some improvements in Q3 and Q4 following the Federal Reserve lowering the overnight lending rates. As the year progresses, more and more banks will re-enter the market for new borrower relationships. Banks will especially be drawn to acquisitions with fresh equity coming in and where there is a resetting of the property value. Refinances will be more challenging because of higher rates. Banks will be really focused on sponsorship and borrower relationships. More

Land lending will improve as rates begin to decline later this year, making take-out construction financing more viable. Expect more available capital as the year progresses with interest rates declining. Keep an eye out for more lenders entering the market as things improve. The majority of unentitled land deals will have to be with the debt funds as some banks remain on the sidelines. More

Expect self storage to be a favored asset class this year. There is a need for self-storage space in many markets and occupancies are not expected to soften anytime soon. Lenders like the fact that this property has consistent demand throughout the good times and the bad. Self storage is still one of the top performers in the commercial space with very few losses experienced by lenders. Certain markets could experience some overbuilding, but lenders will work to keep developers in check and lend to markets that show a need for additional space. More

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