State of the commercial lending market 11/23/2020

The market in general appears willing to lend on stable properties, with a preference towards property types that fit macro and demographic trends. Traditional lenders remain very conservative, however private lenders are filling the need, but with risk-based pricing as they see fit. Leverage still remains constrained across the board in comparison to where it was pre-COVID, as lenders still see risk in the system.

Home Builder Financing – Home builders continue to find product and a wave of willing buyers as the market see increased family formation and a trend away from downtown areas. We continue to see lenders willing to extend leverage and expect the trends to continue.

Apartment building loans – The multifamily market appears to be serviced with a depth of liquidity from multiple capital sources. Fannie and Freddie still require COVID reserves at certain LTV’s. All financing product types are in the market, however with slightly lower leverage than most borrowers would like.

Retail property loans – Retail remains a concern for most lenders in the market. Some retail centers are performing very well, but some are having a lot of struggle. Most centers have seen some sort of rental income impact from COVID and big box is highly scrutinized. Expect leverage to be around 65 – 70% max for most retail assets.

Office Building loans – Lending for office buildings remain consistent, however with concern about work from home trends. Assets are being evaluated based on their exposure to work home from trends and what that will mean for the future of each asset. Average leverage we have seen is around 70%.

Industrial property loans – Industrial remains a solid asset class with most lenders finding comfort in the product type. Leverage depends on location and tenancy, but we have seen lenders push up to the 80% LTV area for some deals.

Hotel Financing – Hotels are an exceedingly difficult product to finance right now. The vast majority of lenders will not entertain the asset class, and the ones that will are being very selective. That being said, we have been able to get several done, including construction for new properties. There appears to be a pocket of value in extended stay properties.

Mobile Home Park Financing – Mobile home parks are seeing a lot of investor interest as more and more groups move into the space looking for higher yield. We are seeing lenders willing to lend to investors, with a gap being in the small balance non-recourse space. As more an more syndicators move into the space and need non-recourse loans, we expect the product type financing to mature.

Self-storage loans – Lenders remain bullish on the asset type and willing to extend credit. There have been several struggling facilities that have popped up, but mainly due to mismanagement and a misunderstanding of the businesses side of the asset class.