Q1 2023 lender segment market update

Q1 2023 Lender Segment Market Update

February 23, 2023

As the first few months of 2023 pass, the market remains volatile due to several factors. These include the Federal Reserve’s decision to raise rates despite cooling inflation, political disputes regarding the debt ceiling, a slew of corporate layoffs, and international tension with the war in Ukraine and renewed tension in the relationship between China and the United States.

All of these contribute to the stability of the commercial real estate finance market. Below is Slatt Capital’s commercial real estate lender segment market report:

Insurance Companies

The insurance company industry continues to perform well in the current market. With a slowdown in activity in Q4 2022, insurance companies were able to accumulate significant cash reserves that are available for deployment in 2023. Although conservative in nature, insurance companies are now accounting for a large portion of new loan requests due to their aggressive pricing structure, which works well when cap rates widen, property values fall, and loan requests start to pencil in the 50-60% LTV range. Average 10-year interest rates range from 5.25%-6.25%, which represents anywhere from 1.30-2.25 basis points over the corresponding US Treasury yield.

Banks/Credit Unions

As money market accounts and CDs offer higher annual percentage yields, banks/credit unions are challenged with attracting more deposits from their customers to issue new loans. This has caused many banks/credit unions to prioritize existing customer relationships, which means that new borrowers may have to transfer their entire banking relationship from their existing bank/credit union to the new one. Another common theme is that banks/credit unions are focused on providing shorter-term loans, such as 3- or 5-year fixed, to mitigate their exposure on long-term loans. Very few banks offer fixed-rate terms longer than 7 years. Rates for banks/credit unions are currently in the 5.50%-7.00% range.


Freddie Mac and Fannie Mae suffered a significant slowdown in the last quarter of 2022, and were priced out of the market compared to their competitors. As of recent, agency rates have come down from their highest point and are now one of the most competitive options in the start of 2023, especially if a subject property has some level of affordability. Although historically agency lenders can push for higher loan-to-values per their policy, deals are not penciling the same way they did a year ago because rising rates have constrained the DSCR requirements. Agency rates are still seen as favorable to experienced multifamily investors, ranging from 5.15%-6%.


Continued volatility in the financial markets has left CMBS lenders with a challenging ending to 2022. Enhanced KYC processes, selectivity on deals, and more focus on stabilized assets are the trends we will see with CMBS lenders in this new year. Despite this, CMBS lenders are issuing new products in commercial financing to capture market share. For example, a 5-year securitization pool has become a new offering for CMBS lenders, with a focus on refinancing in the short term if rates come down. Many CMBS lenders offering this structure have seen an uptick in new loan requests, and combined with full-term interest-only payments, this product has a strong presence in the marketplace. Typical pricing for CMBS ranges from 5.00%-6.00%.

Debt Funds

Debt funds are expected to continue playing a critical role in the lending landscape in 2023, particularly in offering bridge financing and construction financing. The current rising rate environment has made it challenging for real estate developers to structure their construction take-out loans with conventional lenders because the deals are not financially feasible from an underwriting standpoint. Bridge financing has emerged as a viable solution to this problem. Unlike conventional lenders that have debt service coverage ratio (DSCR) constraints in place, debt funds are more flexible and able to offer bridge loans at higher loan-to-value (LTV) ratios based on the asset’s value, rather than just the in-place income of the property. Bridge financing is also an attractive option for borrowers looking to acquire properties that are going through a transitional phase, such as higher vacancy or larger percentage lease rollover in the current year. Conventional lenders tend to focus on stabilized assets with moderate LTV requests, leaving debt funds as a lending partner for value-add properties or those that need to undergo stabilization. Debt funds are currently offering rates ranging from 8% to 12%.

Overall, debt funds are likely to remain a key player in the lending industry in 2023, providing essential bridge and construction financing solutions for real estate developers and investors.


Niko Tsiplakos
Assistant Vice President
D: 650.443.9041