State of the Capital Markets
Kurt Dennis, a managing director at Marcus & Millichap Capital Corporation, brings over 25 years of experience in commercial real estate financing. He observes a notable uptick in lending activity compared to previous years, with refinancing demands remaining high. However, challenges abound, particularly in securing financing for complex transactions. As Dennis highlights, “there's a lot of challenged deals out there,” necessitating more creativity to get deals done.

Understanding Capital Sources
For those unfamiliar with the diverse financing options available, Dennis breaks down the various capital sources. Local banks, credit unions, and government-backed financing through agencies like Fannie Mae and Freddie Mac represent just a fraction of what’s available. For high-risk deals, bridge loans and private capital provide alternative solutions. For example, Dennis notes, “If a client is looking at a heavy value-add play... it might be a great fit for a bridge loan.”

The Rise of CMBS Loans
Commercial Mortgage-Backed Securities (CMBS) are making a comeback, with 2025 projected to see the highest loan volume since before the financial crisis. Dennis points out that CMBS loans offer full-term interest-only payments with higher leverage, making them attractive for borrowers seeking non-recourse options. This resurgence signifies a growing appetite among lenders to provide capital, especially for larger balance loans.

Lender Sentiment and Market Trends
As the market transitions, lender sentiment appears to be improving, with agencies increasing their lending caps in anticipation of higher volumes. Dennis explains that “lenders are generally bullish about placing more debt capital next year,” indicating a positive outlook. However, there is increased scrutiny on underwriting, with lenders probing deeper into borrowers' financials, especially regarding underperforming assets.

Creative Financing Solutions
In light of rising interest rates and economic fluctuations, many borrowers are turning to creative financing solutions. Dennis shares that modifications and extensions are common as lenders work to avoid foreclosure. He explains that “a lot of lenders [are] kicking the can down the road,” allowing borrowers more time to stabilize their assets. Additionally, mezzanine and preferred equity are becoming vital tools in filling gaps in the capital stack.

Impact of Interest Rates on Financing
Interest rates are a hot topic in the current environment, especially with the Federal Reserve's recent rate cuts. Dennis clarifies that while short-term rates may be affected, long-term rates often move independently. As he notes, “when the Fed cuts their overnight rate... it does have a direct impact on construction loans and floating rate bridge debt.” However, for permanent mortgage rates, the influence is less direct, leading to uncertainty about future borrowing costs.