CRE Lending Heats Up Across the Board
Access to debt capital is becoming increasingly abundant as we near the end of 2020, painting an optimistic picture for Q4 2020 and Q1 2021 closings.
Here in Louisiana we’re seeing activity from a variety of alternative lenders, including life insurance companies, finance companies, local lenders and “internet banks” that don’t have brick and mortar stores.
Specific sectors have more lending options than others due to the conservative nature of underwriting criteria. Multifamily and industrial properties have been able to secure five- to seven-year loans with rates in the low 3% range, although multifamily mortgages are now requiring debt service reserves. Office and retail properties are approached with more caution from lenders and loan-to-value ratios have contracted, requiring at least 30% to 35% LTV for many loans. Lending for sectors that have been most impacted by the pandemic, including restaurants, gyms and hotels, have significantly fewer lending options due to the risk of the assets.
At Stirling Properties we track the debt service coverage ratio, which in simple terms is the
NOI (net operating income) of a property divided by the total debt service. Pre-pandemic we were seeing debt coverage ratios between 1.25% and 1.35%. However, now we are seeing the average debt coverage ratio at or slightly above 1.5% which is excellent.
I have been recommending to my clients with investment properties that now is the time to explore refinancing. These rates and terms are the most favorable that I’ve seen during my commercial real estate career.
Justin Langlois, CCIM is a Commercial Real Estate Investment Advisor with Stirling Properties servicing Baton Rouge, Louisiana and surrounding markets. Please reach out to Justin to discuss your real estate investment strategies.