Commercial real estate lenders tighten standards amid persistent high rates

Commercial real estate lenders are adopting more defensive strategies as the Federal Reserve maintains a hawkish stance on interest rates. The central bank raised its benchmark rate to between 3.75 percent and 4 percent in September, with projections indicating rates will remain around 4.1 percent through the end of 2027.

Industry executives report that elevated borrowing costs have prompted a return to fundamental credit analysis. Lenders are now placing greater emphasis on collateral quality, durable net operating income, and realistic lease-up assumptions to ensure deals withstand wider ranges of rate and valuation outcomes.

Firms such as Dwight Investment Management, Wells Fargo, and Principal Asset Management are becoming more selective in their underwriting. Many are favoring bridge loans and assets with strong cash flow characteristics, while requiring sponsors to demonstrate significant financial wherewithal and equity cushions.

Read the full story at commercialobserver.com.