Commercial Real Estate Financing State of the Market | September 2024
Terrydale Capital
Sep 9, 2024 8 Min read
Terrydale Capital is dedicated to providing a wide range of financial services, customized to meet the unique needs of our clients. We prioritize staying ahead in the ever-changing market by maintaining regular communication with our network of capital market experts. In addition, we proactively explore new funding opportunities that are drawing considerable attention. To keep you up-to-date in this fast-paced market, we have compiled financing rates from different regions nationwide.
Private Money: Rate Range: 9.00% - 15.00%
Private money lending continues to be an appealing option for accelerating transactions. Its inherent advantages and flexible short-term structure make it particularly attractive in today's financial climate, even at the tradeoff of higher rates and broader interest rate spreads. While borrowers may face higher costs with hard money loans, the ability to close deals in less than 14 days often outweighs the expense.
Debt Funds & Bridge Lenders: Rate Range: 5.55% – 10.50%
As we progress through 2024, there has been a notable shift in the sources of debt fund executions compared to last year. In 2023, banks and credit unions were the primary executors. However, in 2024, debt funds have taken the lead. These financial instruments have become especially appealing to those seeking to minimize risk and drive financial growth, thanks to their inherent benefits and adaptable short-term structure.
CMBS: Rate Range: 6.50% - 10.95%
CMBS has experienced a strong resurgence recently, with issuances nearly tripling. Currently, CMBS accounts for 14% of all commercial real estate lending. With rates available in the low 6% range, CMBS presents a compelling option for commercial investors. The recent surge in CMBS executions can be attributed to more favorable programs and increased market availability.
Commercial Banks: Rate Range: 6.05% - 10.50%
Banks continue to maintain rigorous underwriting procedures in the current high-interest rate market, prioritizing established clients and deposit relationships. This trend has persisted well into 2024 as we hit the midway mark. Despite these stringent measures, banks have managed to offer competitive pricing, resulting in some of the most favorable rates currently available in the market. However, large banks have started to feel pressure due to their underperforming commercial loans leading some to slow down or pivot their lending appetite.
Credit Unions: Rate Range: 6.00% – 10.50%
Credit unions distinguish themselves from other lenders by offering borrowers lower interest rates, making them an attractive option. However, like banks, credit unions tend to follow a careful lending process, which involves a detailed underwriting procedure that may result in longer closing times, especially given current market conditions. While they provide competitive rates, borrowers should be prepared for potential delays in loan approval and closing due to the thoroughness of their underwriting practices.
Fannie & Freddie: Rate Range of 5.15% – 8.00%
For investors in the commercial residential space, Fannie and Freddie options remain some of the favorable avenues for residential and multifamily properties. Increasingly, buyers are opting to reduce leverage by voluntarily injecting additional equity to secure more favorable interest rates. This strategic approach enables them to capitalize on current market conditions and obtain better financing terms for their investments. As treasuries continue to lower, we can expect these options to remain favorable.
FHA: Rate Range: 5.10% - 7.85%
The current interest rate trend for FHA loans in the commercial real estate sector provides borrowers with an excellent opportunity to seamlessly transition from construction or bridge loans. This can be particularly advantageous for those seeking financial stability. In a higher interest rate environment, opting for FHA loans enables borrowers to secure long-term financing solutions, offering enhanced stability and the potential to reduce overall costs.
HUD: Rate Range: 5.25% - 8.00%
HUD has become a prominent financing option, particularly in the latter half of 2023, and is expected to continue as a reliable choice for investors in 2024. With notable Loan-to-Value (LTV) ratios of 90% for acquisitions and 80% for refinances, combined with 35-year fully amortizing, non-recourse loans, HUD stands out as an ideal solution for various investment scenarios. Whether for new developments, older properties, multifamily assets, or long-term holds, HUD financing is highly effective at optimizing cash flows.
SBA: Rate Range: 8.00% - 10.00%
The Small Business Administration (SBA) has become a valuable option for both novice investors and those seeking lower initial down payments, particularly for owner-occupied properties. Additionally, there is a growing trend among investors to consider transitioning from the SBA 7(a) program to the 504 option, especially for refinancing purposes.
Life Company: Rate Range: 6.00% - 10.00%
With the use of creative strategies and flexible asset preferences, LifeCo options can provide competitive rates in the low 7s. We actively lend on all asset classes. Contact us to learn more.
Mezzanine and Gap Financing:
In today’s market, numerous options exist for structuring deals, and Mezzanine and Equity financing empower our clients to pursue larger projects and bridge funding gaps that may arise. We've noticed an uptick in the demand for gap financing, as more investors seek to bridge the space between their available funds and lenders, often to maintain liquidity. Our Mezzanine connections are well-equipped to assist, although they typically require minimums of $2 million for certain deals to be feasible.
Partner With Terrydale Capital for Your Debt Financing Needs
When it comes to debt financing, understanding the right timing, process, and options is crucial. At Terrydale Capital, we provide a comprehensive range of commercial loan solutions tailored to meet your business's unique needs.
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Headquartered in Dallas, Texas, Terrydale Capital is a leader in commercial real estate financing. We have close relationships with the nation’s top banks, lenders & family offices allowing us to provide the most competitive financing solutions in the market.
