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Commercial Real Estate Loan Rates in December 2024
How are interest rates looking for commercial real estate loans in December 2024? Look at our interest rate tables and read the latest news and analyses.
- Current Rates
- What's Happening to Interest Rates in December 2024?
- Different Interest Rates for Different Loans
- Fannie Mae Loans
- Freddie Mac Loans
- Loans Under $1M
- CMBS Loans
- HUD Multifamily Loans
- HUD 223(f) Loans
- HUD 221(d)(4) Loans
- HUD 223(a)(7) Loans
- HUD 241(a) Loans
- Bridge Loans
- Mezzanine Financing
- Construction Loans
- USDA 538 Loan Program
- Life Company Loans
- SBA Loans
- Fix and Flip Loans
- Permanent Financing
- How Are Commercial Mortgage Rates Determined?
- Factors Affecting Commercial Mortgage Rates
- Property Type
- Borrower Creditworthiness
- Desired Loan Terms
- Economic Conditions
- Choosing the Best Commercial Real Estate Loan for You
- Improve Your Credit
- Reconsider Other Loan Aspects
- Negotiate With Your Lender
- Talk to More Lenders
- Related Questions
- Get Financing
Current Rates
What's Happening to Interest Rates in December 2024?
The federal funds rate range currently sits at 4.75% to 5.00%, after the Fed finally cut interest rates by 50 basis points in September.
What this means is both simple and a little complicated (full disclosure: Nearly everything with interest rates is complicated). The simple part is that financing is cheaper to get today than it was over the summer. That's great news, but what does tomorrow look like? Should you expect rates to fall much further?
Well, that depends on how optimistic you are. The general feeling is that we will likely see at least one or two more smaller rate cuts after future meetings (though a cut in November didn't happen, one before year-end is still possible and even "reasonable").
The point is, even if we don't know exactly how good the news will be, any cut to interest rates is objectively good for all of us who have (or are looking to get) a commercial mortgage. Just…if I were you, I wouldn't expect rates to fall back anytime soon (if ever) to where they were a few years ago. My personal expectation is that rates will remain elevated in some fashion for years to come, even if this recent reduction is most welcome.
And, of course, remember this one important thing: The federal funds rate — while important — is far from the only factor influencing the interest rate that you, a commercial real estate borrower, will get on your next office, retail, multifamily, or industrial financing package. Commercial mortgage rates are determined by a number of factors, including the type of property being financed, the creditworthiness of the borrower, and the strength of the economy.
This page gives the most recent interest rates for each type of financing, with greater discussion toward the bottom on how interest rates are determined, what can impact the rates you’re given by lenders, and how you can improve the terms you receive.
Different Interest Rates for Different Loans
In general, commercial mortgage rates vary by asset class, geographic location, tenant mix, property type, leverage, debt service coverage, sponsorship and hundreds of other factors that are carefully considered in the underwriting for each loan. All of these rates are driven by indices (as indicated below). Commercial Real Estate Loans specializes in underwriting and analyzing property financials. We then leverage the correct scenarios with the right lenders in order to drive down spreads and costs and maximize returns for our clients.
Commercial real estate loans are mortgages secured by a lien on commercial, rather than residential, property. Commercial real estate (CRE) refers to any income-producing real estate that is used solely for business purposes, such as retail centers, office buildings, hotels, and warehouses.
Fannie Mae Loans
Fannie Mae loans are government-sponsored loans that are backed by Fannie Mae, a government-sponsored enterprise (GSE). There is a diverse mix of Fannie Mae loans: Some are available for acquisitions of smaller multifamily properties, while others are reserved for larger development opportunities or refinances.
Fannie Mae financing is available to many borrowers, and the costs of servicing the debt is typically lower than your average bank or credit union loan — even for first-time borrowers or those with relatively little experience. This is due to Fannie Mae's insurance of the debt, which mitigates a lender's risk.
Freddie Mac Loans
Freddie Mac loans are government-sponsored loans that are provided by traditional lenders and backed by Freddie Mac, another GSE like Fannie Mae. Similar to Fannie Mae loans, there are a great number of different Freddie Mac-insured loan options. Whether you're looking for a small fixed-rate refinance or a value-add loan (or anything in between) there's a Freddie Mac loan for that.
Loans Under $1M
Loans under $1 million are typically known as "small balance loans." These loans can often be difficult to find, as most lenders prefer to quote deals for larger financing packages. However, there are a number of strong niche lenders who offer loans starting at $250,000 for commercial real estate properties.
CMBS Loans
CMBS, or commercial mortgage-backed security, loans, loans are senior loans that offer non-recourse financing at a fixed interest rate with a strong focus on a property's strength rather than a borrower's credit score. Once originated, this type of loan is pooled together with other mortgages and traded as securities on the secondary market.
HUD Multifamily Loans
Loans backed by the U.S. Department of Housing and Urban Development offer some of the best multifamily financing terms in the industry. Financing has a fixed interest rate and is fully amortizing over the longest terms in the sector — beyond 40 years for HUD 221(d)(4) loans, for example. These loans are available for most kinds of multifamily properties — not just affordable housing assets.
HUD 223(f) Loans
HUD 221(d)(4) Loans
HUD 223(a)(7) Loans
Loan Type | Interest Rate | Term |
|---|---|---|
HUD 223(a)(7) Loan | 3.5% - 4.5% | 40 years |
HUD 241(a) Loans
Loan Type | Interest Rate | Term |
|---|---|---|
HUD 241(a) Loan | 3.5% - 4.5% | 40 years |
Bridge Loans
Bridge loans are short-term loans intended to "bridge" the gap between the purchase or construction of a property and the long-term financing that will eventually be secured. Bridge loans can also be used to purchase properties that are in need of significant improvements or are in the process of stabilization. This type of loan is typically far more expensive than most longer-term financing packages.
Mezzanine Financing
Mezzanine financing is second-position debt meant to provide an investor with increased leverage. Not all senior or first-position loans allow for mezzanine debt, but they can be very useful in accessing more capital for an investment opportunity.
Loan Type | Interest Rate | Term |
|---|---|---|
Mezzanine Loan | 8.0% - 9.0% | 1 - 5 years |
Construction Loans
Construction loans are short-term loans used to finance the construction of a commercial property. This type of financing can be expensive, given the additional risk a lender takes on in financing an unbuilt property.
Loan Type | Interest Rate | Term |
|---|---|---|
Construction Loan | 6.8% - 13.8% | 1 - 3 years |
USDA 538 Loan Program
The USDA 538 Loan Program is a government-backed loan program specifically available for multifamily properties in rural areas. They offer exceptionally high leverage — up to 90% — but do require the property to target low- or moderate-income renters.
Loan Type | Interest Rate | Term |
|---|---|---|
USDA 538 Loan | 5% - 7% | 10 - 30 years |
Life Company Loans
Life company loans offer some of the best financing terms available for commercial real estate, but their use is generally limited to newer, higher-quality properties in major metropolitan areas. Terms vary from 10 to 25 years, and interest is generally fixed rate.
Loan Type | Interest Rate | Term |
|---|---|---|
Life Company Loan | 4.34% - 7.59% | 5 - 25 years |
SBA Loans
SBA 7(a) loans, insured by the Small Business Administration, are versatile financing vehicles with many applications for small businesses. In terms of commercial real estate, they can be used to acquire land or property that a small business — the borrower — will occupy. The maximum loan amount for most uses is $5 million.
SBA 504 loans, like SBA 7(a) loans, are backed by the SBA and are intended for small businesses. A 504 loan is different in several ways, however. Loan amounts can go as high as $15 million. They're more complicated than other SBA loans, as they involve an SBA-approved certified development company, which can prolong approval timelines and create additional hurdles in terms of paperwork requirements. However, they can offer leverage of up to 90% for properties.
Fix and Flip Loans
Fix and flip loans are short-term loans, similar to bridge financing, that are used to finance the purchase and renovation of a property. Fix-and-flip loans are typically used by investors acquiring distressed assets or those in need of serious rehabilitation or other capital improvements.
Loan Type | Interest Rate | Term |
|---|---|---|
Fix and Flip Loan | 7.0% - 8.0% | 6 - 24 months |
Permanent Financing
Permanent financing is a broad category of long-term financing on commercial real estate. Many of loans listed elsewhere on this page, from HUD financing to CMBS loans, typically qualify as permanent due to their terms of 10 years and beyond.
Loan Type | Interest Rate | Term |
|---|---|---|
Conventional Loan | 4.5% - 5.5% | 5 - 25 years |
Government-Backed Loan | 3.5% - 4.5% | 5 - 25 years |
Portfolio Loan | 5.0% - 6.0% | 5 - 25 years |
How Are Commercial Mortgage Rates Determined?
First up, it’s essential to understand that interest rates for commercial real estate loans are more than just a standard spread on top of an index or the federal funds rate. The interest rates you’re quoted will be different from investor to investor.
Why? It all comes down to risk. Simply put, the higher the risk to the lender, the higher the interest rate you’ll generally get.
Factors Affecting Commercial Mortgage Rates
Let’s explore these risk factors further. Where does this risk come from?
Property Type
The most important factor lenders look at is the type of property tied to the loan. Retail and hospitality properties, for example, generally are considered higher risk than a multifamily or industrial facility. The condition of the asset is also important, of course. A dated, Class C suburban office park will generally yield a higher interest rate than a newer trophy asset in a major downtown area.
Borrower Creditworthiness
A lender also looks at you, the borrower. It shouldn’t be surprising to learn that borrowers with stronger credit histories and investment track records will typically get far more advantageous interest rates.
Desired Loan Terms
Interest rates are also determined by what you’re looking for in your loan terms. Aiming for a short-term, 12-month bridge loan? Those carry significant risk, so expect rates to be quite a bit higher than for a 10-year permanent loan on the same property. Are you set on getting a fixed interest rate? That will likely give you a higher rate, too. Going for financing at a higher loan-to-value ratio? Be prepared to see that priced into the financing.
Economic Conditions
The strength of the economy is also a factor in determining commercial mortgage rates. When the economy is strong, commercial property values are typically higher. As a result, lenders are more willing to lend money at lower interest rates. When the economy is weaker, commercial property values are typically lower — and potentially falling — and so lenders are more risk averse. They price that out by charging higher interest rates.
The reality? It’s not just one factor that determines your loan’s interest rate. It’s a combination of all of the above. Some are within your control — like your credit score and the type of financing you’re pursuing — while some are not.
Choosing the Best Commercial Real Estate Loan for You
So, let’s focus on what’s within your wheelhouse. You can’t single-handedly improve the economy, nor can you change the risk embedded in an asset class, after all.
Improve Your Credit
But you can, for example, improve your credit score. Examine your credit history, and see what you can do to boost your FICO score. Even moving from a 650 to a 680 could significantly improve the rates a lender is willing to offer you. If you need the money immediately, this may not be a viable option, of course. Repairing your credit history can take time.
Reconsider Other Loan Aspects
What if time is something you don’t have? What if you need to refinance your property now — say, to avoid a massive balloon payment? Consider reevaluating your desired loan terms. Looking to refinance debt at a lower loan-to-value ratio is a great way to improve your loan terms. It may require you to invest more into the property, but the longer-term impacts of lower-cost debt servicing are likely worth considering.
Negotiate With Your Lender
You should also negotiate with your lender. One of this article’s main intended takeaways is that interest rates aren’t a black-and-white, predetermined thing. They fluctuate from day to day, and from borrower to borrower. You may have more leverage than you realize in negotiations, and it certainly can’t hurt to ask your lender for more competitive terms.
Talk to More Lenders
It’s critical to shop around. Yes, many investors use a single bank or credit union to finance the bulk of their acquisitions. These relationships are great to have — but relying solely on them can net you subpar terms and higher costs in both the short and long term.
Don’t worry if you aren’t sure which other lenders you should talk to, or if it sounds like a lot of work.
That’s where Commercial Real Estate Loans sets itself apart. Fill out the form below with your details, and we’ll shop around for you. We have relationships with a vast network of lenders across the country, and we leverage that to provide the very best loan terms available. So, take a minute, and get a free quote from us today.
Related Questions
Who determines commercial mortgage rates?
- Commercial mortgage rates are determined by a number of factors, including the type of property being financed, the creditworthiness of the borrower, and the strength of the economy.
- Current Rates
- What's Happening to Interest Rates in December 2024?
- Different Interest Rates for Different Loans
- Fannie Mae Loans
- Freddie Mac Loans
- Loans Under $1M
- CMBS Loans
- HUD Multifamily Loans
- HUD 223(f) Loans
- HUD 221(d)(4) Loans
- HUD 223(a)(7) Loans
- HUD 241(a) Loans
- Bridge Loans
- Mezzanine Financing
- Construction Loans
- USDA 538 Loan Program
- Life Company Loans
- SBA Loans
- Fix and Flip Loans
- Permanent Financing
- How Are Commercial Mortgage Rates Determined?
- Factors Affecting Commercial Mortgage Rates
- Property Type
- Borrower Creditworthiness
- Desired Loan Terms
- Economic Conditions
- Choosing the Best Commercial Real Estate Loan for You
- Improve Your Credit
- Reconsider Other Loan Aspects
- Negotiate With Your Lender
- Talk to More Lenders
- Related Questions
- Get Financing