Latest Finance Trends

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

Look for plenty of available capital for single-family rentals (SFR) and build-for-rent (BFR) projects, as builders continue to shift toward these models in the face of declining home sales and while interest rates remain high. The market will remain robust, and projections show plenty of interested renters. Expensive debt will make development more difficult going forward. Debt service will be higher since rates have risen and rent growth is slowing. More

Mezz loans will be in high demand as first mortgage lenders are providing lower leverage levels and owners/operators are having a harder time raising equity. There is a wall of maturities coming next year and mezz will help fill the gap left behind by bridge lenders. Count on a strong need for mezz to help fit those gap financing needs, especially for refinancing and construction capital. Many traditional mezz lenders are pulling back their last dollar exposure, so keep an eye out for lenders requiring more equity going forward. More

Student housing will continue to be a favored asset class. The sector performed better than expected throughout the pandemic and is proving to be recession-proof. More lenders, including additional life insurance companies, will consider offering loans on student housing assets going forward. Five to 10 years ago, many lenders considered student housing a niche asset class. More

Count on more appetite for pref equity versus JV equity, based on today’s attainable yields. JV equity has slowed and is a tighter market because many investors have decided pref equity is more attractive. High, short-term rates are creating negative leverage on value-add or construction transactions; overall rate uncertainty and the increasing desire to wait for distress has caused many investors to pivot. More

While hotel construction continues to be tough to finance, certain deals will be able to grab lender dollars. In unstable markets, hotel construction generally is one of the first buckets to see lending dry up. It will take some time after the market stabilizes and interest rates move down for lenders to fully jump back into construction lending. More