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.
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 still possess the best capital available in the market going into Q3 as they are immune to increased regulatory restrictions that banking institutions have faced, have zero deposit requirements, provide predominantly non-recourse loans, and are most importantly, still actively lending across all asset classes. With banks, credit unions, CMBS, and other capital sources either on the sidelines or providing quotes with less leverage, higher rates, and more red tape, life companies enter the Q3 with full pipelines and plenty of capital remaining in 2023.
The biggest challenge life companies face is generally internal with their bond departments. Life Co’s invest in an array of income-producing investments such as bonds and commercial mortgages providing long-term fixed income to match against their long-term liabilities (i.e. annuities, life insurance, etc.). The yield on investment grade bonds, a rating of BBB or better, has increased to over 5%. As such....Continue Reading
-Grady Seldin, Vice President
Credit Unions:
Credit Unions can be a good option for a loan on commercial properties depending on the borrower’s long-term investment strategy. A benefit of credit union financing is its usually fixed-rate loans that have no prepayment penalty. The flexible prepay structure of credit unions can be a great option in this current lending environment where we have seen a substantial increase in rates and can allow the borrower to refinance anytime they want when rates go down.
A caveat to credit union financing is that the debt is usually full recourse to the borrower. Credit Unions usually underwrite a full global cash flow analysis on the borrower rather than just underwrite the property itself for loan approval. This means there will be additional paperwork to fill out on personal assets including tax returns rather than just concentrating on approving the property itself.....Continue Reading
-Tony Messiah, Vice President
Debt Funds:
Debt funds continue to play an active and important role in the financing market with a focus on ground-up and value-add construction, bridge, and increasingly, rescue capital for properties suddenly thrust into transition due to some combination of shifting consumer preferences, rapid increases in their cost of capital, or a softening of rents in some markets. Their ability to craft bespoke structures, close transactions quickly, and provide higher leverage continue to make debt funds an attractive albeit expensive option for an increasing number of borrowers.
Multifamily and industrial projects continue to attract the most interest for construction financing and while many program guidelines will allow for loans of 80% of cost or more, stabilized debt service requirements are generally constraining the proceeds. Still, debt funds....Continue Reading
-David Sarnoff, Vice President
Agencies:
Similar to the market as a whole, the agencies are behind on their annual production goals. Freddie is making a concerted effort to generate business by adding an additional year of interest-only, bringing it up to 2 years. They’re also providing borrowers with 35-year amortizations if the property is considered mission-driven. In general, Freddie’s spreads are very competitive at +180, and can continue to give discounts to the spread if it’s mission-driven. Fannie is heavily focused on mission-driven properties and deals that qualify for federal housing goals. Otherwise, Fannie has been less competitive with spreads hovering around +200.
-Jacob Lee, Vice President
Banks:
The bank world is completely flat right now. It seems that there are only a handful of banks doing business right now. Many of them are focused on chasing depository relationships or servicing existing clients. This pertains to permanent, bridge, and construction financing. Recommended depository relationships used to be 10%-15% of the loan amount. These days banks are looking for double that number, on average. Some are asking for even more.
Rates are generally somewhere in the 6’s. Multifamily and industrial are still the preferred product types, but banks that have historically serviced other property types will conditionally lend on them as well – retail, mixed-use, etc. There are generally two types of banks in the marketplace right now for permanent financing. There are those that price term loans with a spread over the corresponding treasury (i.e. a 5-year loan is priced over the 5-year Treasury, 10 over 10, etc.), and there are those that price over WSJ Prime. Prime-based lenders.....Continue Reading
-Jonny Soleimani, Vice President
Fed Meeting Update
Fed approves hike that takes interest rates to highest level in more than 22 years (CNBC)
The Federal Reserve approved a much-anticipated interest rate hike that takes benchmark borrowing costs to their highest level in more than 22 years.
The quarter percentage point increase will bring the fed funds rate to a target range of 5.25%-5.5%.
While policymakers indicated at the June meeting that two rate hikes are coming this year, markets are pricing in a better-than-even chance that there won’t be any more moves this year.
Chair Jerome Powell said the central bank will make data-driven decisions on a “meeting-by-meeting” basis.
About PSRS Founded in 1972, PSRS is a commercial mortgage banking firm that helps real estate investors of all sizes structure and secure financing solutions that align with their investment goals.
