Commercial real estate financing is more difficult to come by at this time due to a pull back by banks.  Elevated interest rates and declining property values for some asset classes, primarily office and retail, have made it difficult for property owners to secure refinancing or keep up to date with loan payments.

Taking cues from the collapse of Silicon Valley Bank and First Republic Bank, maybe commercial lenders are trying to minimize their exposure to commercial real estate, even if it means offloading loans at a discount.  The Wall Street Journal reports that nearly $1.5 trillion in commercial mortgages will come due over the next 3 years – many of which are interest-only loans.  Typically, when these loans come due owners are able to either sell the property or refinance, but given current market conditions and declining building values in the office sector refinancing may not be an option.  Xiaojing Li, managing director at data company CoStar’s risk analytics team, estimates that as much as 83% of outstanding securitized office loans won’t be able to refinance if interest rates stay at current levels.

According to Bisnow, overall commercial property deal volume is down 72% in April compared with a year earlier.  Multifamily developers and investors may run into funding issues as the stress of looming defaults puts pressure on the regional banking system.  Construction loan rates are hovering around 9-10% which is an increase of 4% from just two years ago.  Once potential financing solution includes switching to a fixed rate loan.  Although this would require an influx of cash, this can be a good temporary solution to owners caught between rising interest rates and stagnant or decreasing rental income.