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The investment property lending environment continues to be more challenging than it has been in recent years, with lower leverage resulting from higher interest rates and lenders’ debt service coverage requirements.
That said, with short-term interest rates continuing to move higher, there are still good options for refinancing any floating-rate construction (or other) loans to fixed interest rates, financing an acquisition with one of the more aggressive lenders in the market, or obtaining construction funding for high-quality projects.
Treasury yields:
- 5-10 year treasury yields moved up to the mid-3% range in June, then back down to the 2.6% range in early August, and are now approaching 3% again.
- The volatility in treasury yields is causing some commercial and multifamily lenders to be cautious about their offered loan rates.
Lenders:
- The uncertain economic environment has led many lenders to reduce risk by tightening their lending policies or even stopping lending on certain types of loans.
- As such, the remaining active lenders are often more selective about the opportunities they pursue and don’t need to be as aggressive on pricing or leverage as they were previously.
- This has resulted in a lending environment with dramatic differences in leverage and pricing from lenders that previously quoted relatively similar terms.
Stabilized Multifamily Loan Terms:
- Agency loan interest rates are currently anywhere from the low 4% range (for low leverage) to the mid 5%s; they are generally not very competitive with banks on leverage or pricing, but they may become more aggressive as they approach year-end with their volumes below target.
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Bank pricing for multifamily loans covers a wide range (up to 6% or higher), but the most competitive banks have interest rates as low as 4.5% with 1.20x DSCR resulting in leverage of 60-65% LTV, with some banks also providing non-recourse loans. Some banks will also lock the interest rate at application – with little to no seasoning – thus avoiding the risk of a volatile treasury yield market.
Bridge and Construction Loan Terms:
- Bank construction loans are generally available at around 60% LTC +/-, but the banks still providing construction loans are being more selective about which sponsors and projects they will pursue.
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Many private bridge and construction lenders have paused their programs while others are still lending. Leverage is still available at 70-75% LTC with interest rates around 8-10% for private construction loans and as low as 5.5% (floating rate) for bridge loans. A few lenders are also starting to offer fixed-rate bridge loans given that floating rates continue to move higher.
Junior Debt / Preferred Equity:
- With reduced leverage available on senior loans, more opportunities are in need of junior debt or preferred equity to complete the capital stack. Such funding is often available up to 75-85% LTV, with pricing and leverage dependent on the nature of the opportunity.
Are you interested in discussing your financing or refinancing options? Our team is happy to listen to your current situation and goals, and help you find the best creative capital option to meet your needs.
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