Q4 2023 lender segment market update

Q4 2023 Lender Segment Market Update

November 30, 2023

As we step into the final month of Q4 2023, the landscape of the commercial real estate finance market is marked by persistent challenges, notably heightened geopolitical tension and unrest in Europe and the Middle East. Amidst these trials, a glimmer of positive news emerged, with the Federal Reserve maintaining rates in November and positive job figures for October.

All of these events impact 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 has proven to be one of the top capital sources in the back half of the year. This is primarily due to the fallout of certain banks from earlier this year – a result of which has caused turmoil in the banking industry and a slowdown in their lending, leaving insurance companies to pick up market share. Historically, insurance companies have been known to be more conservative, but widening cap rates, aggressive lender spreads, and favorable loan terms are pushing insurance companies to price competitively in the 50-65% LTV range, where competition was fiercer in the past. Average 10-year interest rates range from 6%-7%, representing anywhere from 1.60-2.50 basis points over the corresponding US Treasury yield.

Banks/Credit Unions

The banking industry suffered a major blow earlier in the year with the fall of Silicon Valley Bank, First Republic Bank, and other notable banks. What most do not know, is that other smaller regional, local and community banks suffered as a result. There are many instances of bank lenders who were offering low interest rate loans in 2020, 2021, and early 2022, that are now struggling to stay competitive as they cannot originate commercial loans at higher rates nor meet the demand of money market accounts and CDs that require higher annual percentage yields. Banks and credit unions are still challenged with attracting more customer deposits. For the banks and credit unions that kept their loan-to-deposit ratios at a healthy level—less than 80%—they are still active in the market, offering somewhat competitive terms. Still, there is a major focus on 3,5,7-year fixed terms and not as much on longer fixed terms due to flexible prepayment penalties with the shorter-term options. Most bank lenders are offering financing in the 2%-2.75% lender spread range or have a minimum floor of 7%, and many are making it a requirement of new borrowers to open depository accounts targeting 10-30% of the loan balance as deposits for the bank/credit union.


Freddie Mac and Fannie Mae face their own set of challenges stemming from recent developments on how loans are to be brokered to these agencies. My colleague, John Darrow wrote an extensive article HERE outlining some of those changes. Agency financing has started to pick up in certain geographic areas that offer higher cap rates for investors; a reason why syndicators/investors use agency programs for multifamily is the ability to leverage up on properties in secondary or tertiary markets where those cap rates are primarily found. Regarding how agencies are pricing loans, we are seeing a decline in rates over the last few weeks due to the downward movement of treasuries. Top markets are seeing best pricing for Freddie Mac in the 6.35%-6.85% range, while Fannie Mae rates have broken the 5% barrier with deals in the 5.75%-6.34% range for qualified properties. Fannie Mae has also rolled out rate buydowns, where by paying 1-2% of the loan amount can equate to a 15-30 bps decrease in spread.


The CMBS industry is still in flux, but there is some interest in higher leverage interest-only requests. With over $1.5T worth of loans maturing in the next 18 months, many of the borrowers who have high-leverage refinance requests coming down the pipeline may find themselves working with a CMBS execution, as this product is one of the only types willing to push leverage on stabilized assets. The 5-year securitization pool offered by some CMBS lenders is still a more attractive product vs the traditional 10-year, especially if rates decline within the next 3-5 years. The majority of investors are hesitant in taking a 10-year term with defeasance because when they refinance, they could be hit with a major penalty. The good news is that to stay competitive, CMBS lenders are offering rate buydowns. Today, spreads for CMBS range from 2.50%-3.75% across the correlating treasury or index.

Debt Funds

Debt funds have been extremely active in 2024, particularly in offering bridge financing. Many of the high-leverage short-term and floating-rate loans that are approaching their maturity dates are having a hard time qualifying for conventional financing because the in-place cash flow cannot support the original loan balance. This is where bridge financing has emerged as a 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. However, it is important to note that bridge lenders are not underwriting their deals to an exit sale anymore; they are using a refinance exit strategy. This means those bridge lenders want to see the property is able to be refinanced with a conventional lender down the road. A double-edged sword for the borrower: create value in a short period of time or face the repercussions. Debt funds are currently offering rates ranging from 9% to 12%; some are fixed rates, and some are based on SOFR + 350-600 spreads.


Niko Tsiplakos
Assistant Vice President
D: 650.443.9041