Banks are eager to lend for certain high-performing properties, according to Michael Thom, attorney in the business and finance department at Obermayer. "Lenders are more eager to get the money on the street," Thom told GlobeSt.com, who encourages property owners to explore financing opportunities that may have been unavailable in the past.
At the same time the commercial real estate market is undergoing a shift, particularly in suburban areas, Thom said, pointing in particular to the robust performance of commercial real estate around Philadelphia and parts of New Jersey. Thom emphasized the improved loan performance in these regions, attributing this uptick to a combination of factors, including declining interest rates and refinancing opportunities that have emerged over recent quarters.
Occupancy rates are another crucial factor driving the appeal of suburban real estate. "More tenants have returned to the office in some suburban markets because people live close to the offices," according to Thom, indicating that lower vacancy rates make these properties more attractive to lenders. This trend is leading banks to show a preference for financing suburban properties over urban ones.
In recent months, there has also been a noticeable shift towards financing single-tenant properties, which offer more security due to long-term leases.
"If you have one tenant and it's 100% occupied for a 10-year lease, it gives that lender some comfort," Thom explained.
In addition, banks are showing a keen interest in financing specific types of properties, such as manufacturing, industrial, warehouse, and self-storage facilities, which are considered safer investments. "We're starting to see some of the banks come back around to lending on more secure real estate," Thom remarked.
None of this is to say banks are relaxing their stringent underwriting standards. "Banks remain cautious about the commercial real estate loans," Thom said, adding that properties are being underwritten to higher standards to prevent defaults. In short, banks are striking a careful balance to capitalize on promising opportunities while maintaining rigorous standards.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
