We believe it is vital to keep our clients informed concerning the major lending sources in the market. We asked a few of our producers in our LA office to call our lenders and provide insight into how these various lending segments are performing in the market. Keep reading below to find out more:

Life Insurance Companies:

Life insurance companies, like most of the lending market, are seeing less volume through the first half of the year. Some are mitigating the lower volume by competitively pricing larger deals to bring their total originations in line with mid-year goals. Alternatively, some lenders continue to capture traditional bank deals where borrowers are reluctant to meet growing deposit requirements. To win more multifamily business going into the second half of the year, we’re seeing LifeCos bring in spreads by +20 to +40 basis points, down to +160 to +175 as a base starting point for core stabilized multifamily deals. Industrial deals continue to see similar pricing for both big box and small bay. Industrial product on the periphery or in secondary markets with rollover should anticipate riskier pricing. Grocery-anchored remains the favorite among retail product, while neighborhood centers and strip centers within densely populated areas remain favorable among LifeCos.

We continue to see LifeCos stepping up to assist borrowers with reducing their cost of capital for deals that are progressing into lease-up. Whether it’s an extended rate lock period to reach your stabilized occupancy/NOI or releasing additional dollars once occupancy hurdles are achieved, lenders are amenable as these deals are often high-quality product that simply need time. Life Companies are generally thought to only offer long-term financing options, but we continue to provide our borrowers with 3/5/7year options to meet their business plan. Similarly with prepayment flexibility and interest-only, all of which can be included in our LifeCo financing options.

-Jacob Lee, Vice President

Banks:

The challenges in bank financing have continued in 2024. Beyond a general pullback, most bank financing requires anywhere from 5% - 25% of the loan amount in deposits, many times to be held for the life of the loan. This is slightly lower than I remember at this time last year. In an apples-to-apples comparison, requiring that level of deposits for similar leverage and similar transaction costs makes many banks uncompetitive. However, there are cases in which banks can offer a little bit more in loan proceeds. If the transaction costs are lower and leverage is higher, there are scenarios where this makes sense.

Overall, the banking world has stabilized slightly – it’s clear who is doing deals and who is pricing themselves out. Many banks have focused on a particular niche that they see as a ripe investment opportunity. For example, some banks are pivoting towards higher-yield bridge loans. Others are focused on multifamily only. I’m seeing mostly 3- to 7-year terms, amortized over 25-30 years with a rate in the high 6’s-low 7’s. Recourse is usually a baseline requirement. Sometimes, for a lower-leverage deal, non-recourse and interest-only are available. I’m not seeing any banks doing office lending. Many are selective on retail and the types of tenants they allow. They are most consistently quoting multifamily and industrial deals. Prepayment penalties are almost always step down with perhaps some flexibility for a rate increase.

-Jonny Soleimani, Vice President

Debt Funds:

Debt funds today are seeing a lot of business and have become increasingly selective in transactions they are executing as we see many banks pulling out of the market. The bank deals falling out and needing to close in a shorter time frame have been pushed to the debt funds. This has caused increased competition in the space from the borrower side as debt funds are seeing many deals they historically have not seen given the turmoil banks and credit unions are facing with limited deposits, which is the oil that keeps their machine going. Debt funds are seeing more deals with less risk. With this being said, debt funds are becoming more selective with the money they are putting out, reducing their risk of executing more conservative transactions while keeping their return at about 3.50-4.00 % spreads over SOFR. In many cases, debt funds have been the only option in desperate times.

-Will DeFanti, Vice President

Credit Unions:

The credit union world feels eerily similar to the bank world when it comes to leverage, rate, and property type. The only difference is that there are more credit unions with a completely open prepayment penalty. Credit unions seem to be structuring “5+5” loans – fixed for 5 years, followed by a market-rate reset that’s fixed for another 5 years. There is also a clarification process going on in which many of the credit unions we are used to getting quotes from are on the sidelines. On the other hand, many have jumped back into the game. There are always a few “hot money” credit unions that come out of nowhere and under-price the rest of the market. We’ve seen this going back a few years. Most credit unions are recourse and do a very deep dive not only into property-level details but borrower-level details as well.

-Jonny Soleimani, Vice President

CMBS:

CMBS can be a good financing option for borrowers with attractive loan terms. Sub 50% LTV and high cash-flowing properties above 1.50DCR with strong sponsors can see very competitive rates with a spread as low as 180 with full-term IO, 30-year amortization, and non-recourse financing. If the borrower wants max proceeds on a 65% LTV and 1.25 DCR, spreads can range anywhere from 200- 350 over the corresponding treasury. A benefit of CMBS financing is that the loans are sold off to secondary markets so lenders can take on a little more risk with the fundamentals but will structure around through reserves, higher rates, loan fees, and insurance costs. CMBS is great for non-recourse financing and its ability to max out on leverage and offer full-term interest-only options on properties that other lenders may pass on.

-Tony Messiah, Vice President