Interest rates have been increasing in recent months and are expected to continue to rise in 2023.
As interest rates increase, the cost of borrowing money for commercial real estate purchases and refinancing has increased, causing concern for borrowers. However, the need to secure additional funding to weather the storm does not have to be daunting.
Interest Rate Challenges CRE Investors Are Facing in 2023
One of the current issues for CRE investors who are already in the market has to do with the rising interest rates, including those that are cutting floating rates and offering fixed rate loans instead. A floating rate can fluctuate based on the current market, whereas a fixed rate stays the same for the duration of the loan.
Because of this, many CRE investors are in a pinch and need to inject more cash into their investments, fast.
The other obvious alternative is to sell quickly, though this is not ideal, especially in a down market.
While the increased cost of borrowing can be a challenge, it is not a reason to shy away from investing in commercial real estate or hanging onto what you currently have.
Is Commercial Real Estate a Smart Investment to Hold Onto in 2023?
The rise in interest rates is not necessarily a negative sign for the commercial real estate market in 2023. With higher inflation, many commercial real estate investors, for example, can increase rent for their properties to keep up with costs.
Additionally, according to an analysis by Cushman & Wakefield recently published in Forbes, “Every 1% increase inflation is associated with a 1.1% increase in total returns to investors, including REITs, pension funds, and individual investors.”
So, while media headlines may look grim, injecting capital into CRE investments with a loan can help investors hang onto properties during this time.
More Challenges CRE Investors are Facing in 2023
In addition to interest rates rising, we are seeing our clients come to us having previously dealt with other challenges as they sought financial support for their commercial real estate investments.
For example, some challenges our clients have experienced include:
- Loans denied in the 11th hour or loan terms changing from the original quote
- Changing credit guidelines throughout the application process
- Longer time frame for loan approval
- Increased lender requirements for approval
- Appraisals coming in low
Even if you have experienced any of the above and feel like you have exhausted your options, there are still alternatives, and we can help.
Where to Find Loan Options for Commercial Real Estate in 2023
Getting a bank loan is an obvious solution, however, banks are less forgiving now compared to during the pandemic. If you have distressed debt, a bank might not be willing to lend you the capital you need to allow your CRE investments to survive the current interest rate increases we are currently experiencing.
There are alternative lending options available, that might even be a smarter option to go with long-term compared to the bank anyway.
For investors who are feeling the impact of rising interest rates, alternative lending options can provide more favorable terms.
These options can provide creative solutions and offer more favorable terms than traditional bank loans, especially for borrowers who might not qualify for traditional financing.
Where to Find Additional Capital for Commercial Real Estate
If you were turned down by the bank for your commercial real estate loan or want to consider a variety of options before making a choice on which type of loan to go with, we can help.
At Innovative Capital, we are your loan concierge. Our team is dedicated to finding you the best quality loan at the best rates for your commercial real estate investments.
We can help you shop multiple lenders in our network to find the right loan, or we can leverage private capital to help provide a solution when a deal is considered “un-bankable.”
Through the extensive knowledge and experience of our team, we provide a strategic and varied outlook on the best solution – and we only earn our fee when we perform and provide a loan that you choose as your best option.
We have a large, varied list of connections with many types of lending sources, including private capital.
We broker thousands of loans every year, many of which are commercial real estate loans. See our current market rates and view our Recently Funded page for examples of clients we have worked with.
Get in touch with one of our team members for more information on securing a loan for your specific needs today. Request a quote here and we will get back to you shortly.