Although financings for commercial real estate appeared to have bottomed out in 2023 and the first half of 2024, a new report from Altus Group suggests that bank and non-bank borrowers are finding it easier to pen deals today than they were two years ago.
The data firm surveyed over 400 commercial real estate professionals in the U.S. responsible for arranging financing and found that while borrowers continue facing challenges securing funding, there is a growing divide in how bank and non-bank borrowers perceive the lending landscape, highlighting key challenges and inefficiencies that persist across the industry.
While both types of borrowers are more likely to cite personalized service, greater timeliness, ease of securing financing, and lender stability as the top benefits of working with their respective lenders, they are also less likely to point to personal rapport or strong business relationships as top benefits of working with their preferred lenders.
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Although optimism around securing financing improved for both bank and non-bank borrowers over 2023, the study found that concerns about the high cost of capital and economic uncertainty remain significant challenges. While interest rates have begun to decline, the study notes, it may take years before the Fed’s decision to lower rates is reflected in commercial real estate.
Non-bank borrowers, who tend to have a more pessimistic outlook on the market, are seeking standardized and streamlined application processes to navigate the market efficiently. Meanwhile, bank borrowers expressed greater satisfaction with their lending experiences and more optimism about navigating the current environment. However, they did also raise concerns about lender reputation and delays due to third-party involvement, such as regulators, that extend funding timelines.
Altus found that despite bank borrowers having a much more stringent application process than non-bank borrowers, funding timelines are, on average, much shorter than timelines for non-bank borrowers.
CRE investors surveyed in the report also offered insights on how the process could be improved. Both groups highlighted the need for greater flexibility from lenders, more automation in underwriting, and earlier preparation of appraisal data. However, bank borrowers emphasized the importance of streamlined appraisal requirements and flexible term sheets, while non-bank borrowers called for faster data collection and better pre-screening of lenders.
With the divide between bank and non-bank borrowers continuing to widen, navigating the lending process will require both flexibility and speed to secure financing in an uncertain market. The pace at which the Fed eases monetary policy will be pivotal in shaping how quickly lenders and borrowers regain confidence and move forward with deals across the commercial real estate sector in 2025, but it could be months or even years until the fall in rates translates into lower financing costs.
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