CRE Borrowers Split On Financing Outlook Despite Improving Economic Conditions

Despite a challenging environment for commercial real estate financing in 2023 and the first half of 2024, a new report from Altus Group indicates that securing deals is becoming somewhat easier for both bank and non-bank borrowers compared to two years ago.

Altus Group surveyed over 400 U.S.-based commercial real estate professionals who are responsible for arranging financing. The findings reveal that while securing funding remains difficult, a noticeable gap exists in how bank and non-bank borrowers view the current lending landscape. This divide highlights ongoing challenges and inefficiencies within the industry.

Both bank and non-bank borrowers cited benefits such as personalized service, quicker financing, ease of securing funding, and lender stability. However, fewer borrowers from both groups emphasized personal relationships or business rapport as key advantages of working with their lenders.

While there was improved optimism about securing financing over 2023, concerns about high capital costs and economic uncertainty remain significant obstacles. Although interest rates have started to decline, the report notes it may take years for the Federal Reserve’s rate cuts to positively impact commercial real estate financing.

Non-bank borrowers, typically more pessimistic about the market, are looking for streamlined and standardized application processes to navigate the market efficiently. On the other hand, bank borrowers reported higher satisfaction with their lending experiences and expressed more optimism about navigating current conditions. However, they also raised concerns about lender reputations and delays caused by third-party involvement, such as regulators, which extend funding timelines.

Altus Group found that despite the more rigorous application processes faced by bank borrowers, their funding timelines are generally much shorter than those for non-bank borrowers.

The report also included insights from commercial real estate investors on how to improve the financing process. Both borrower groups called for more flexibility from lenders, increased automation in underwriting, and earlier preparation of appraisal data. Bank borrowers stressed the need for streamlined appraisal requirements and flexible term sheets, while non-bank borrowers emphasized the importance of faster data collection and better pre-screening of lenders.

As the gap between bank and non-bank borrowers continues to widen, securing financing in today’s uncertain market will require flexibility and speed. The Federal Reserve’s approach to easing monetary policy will play a critical role in how quickly lenders and borrowers regain confidence and move forward with deals. However, it may take months or even years before rate reductions translate into lower financing costs.

 

Source:  GlobeSt.