Arkansas is a state with a diverse economy, driven by industries such as agriculture, manufacturing, and healthcare. The state's low cost of living and business-friendly environment make it an attractive location for commercial real estate investors. If you're looking to invest in commercial property in Arkansas, it's important to understand the current state of the economy and real estate market, as well as the financing options available to you.

Economy in Review

According to the Bureau of Labor Statistics, Arkansas had an unemployment rate of 4.4% as of June 2021, slightly higher than the national average of 5.9%. However, the state has seen steady job growth in recent years, with a 1.5% increase in nonfarm employment from June 2020 to June 2021. The state's GDP also grew by 4.6% in 2020, outpacing the national average of 4.3%. These positive economic indicators bode well for commercial real estate investors in Arkansas.

Multifamily Market

The multifamily market in Arkansas has remained relatively stable in recent years, with a vacancy rate of 6.7% as of Q2 2021, according to CBRE. The average rent for a two-bedroom apartment in the state is $831 per month, slightly below the national average of $1,124. Financing options for multifamily properties in Arkansas include conventional loans, FHA loans, and USDA loans.

Office Market

The office market in Arkansas has been impacted by the COVID-19 pandemic, with many companies adopting remote work policies. As a result, the vacancy rate for office space in Little Rock, the state's largest city, increased to 14.5% in Q2 2021, according to CBRE. However, the market is expected to rebound as businesses return to in-person work. Financing options for office properties in Arkansas include conventional loans, SBA loans, and CMBS loans.

Industrial Market

The industrial market in Arkansas has seen strong demand in recent years, driven by the state's central location and transportation infrastructure. The vacancy rate for industrial space in Little Rock was just 3.8% in Q2 2021, according to CBRE. Financing options for industrial properties in Arkansas include conventional loans, SBA loans, and USDA loans.

Retail Market

The retail market in Arkansas has also been impacted by the COVID-19 pandemic, with many retailers closing their doors or shifting to online sales. The vacancy rate for retail space in Little Rock increased to 9.7% in Q2 2021, according to CBRE. However, the market is expected to recover as consumer spending rebounds. Financing options for retail properties in Arkansas include conventional loans, SBA loans, and CMBS loans.

Self-Storage Market

The self-storage market in Arkansas has seen steady growth in recent years, with a vacancy rate of just 6.3% as of Q2 2021, according to CBRE. The average rent for a 10x10 unit is $68 per month, slightly below the national average of $92. Financing options for self-storage properties in Arkansas include conventional loans and SBA loans.

Hospitality Market

The hospitality market in Arkansas has been impacted by the COVID-19 pandemic, with many hotels and restaurants closing or operating at reduced capacity. The occupancy rate for hotels in Little Rock was just 44.5% in Q2 2021, according to CBRE. However, the market is expected to recover as travel and tourism rebound. Financing options for hospitality properties in Arkansas include conventional loans, SBA loans, and CMBS loans.

Commercial Real Estate Loans by Purpose

There are many types of loans available for commercial properties in Arkansas, and the best fit for you depends on your investment strategy. Here are some broad categories of financing available.

Permanent Financing

Permanent financing is a type of loan that remains in place for an extended period of time. It's commonly used to finance the acquisition of commercial properties or to refinance existing debt. Types of permanent financing include bank loans, loans from government-sponsored entities like Fannie Mae and Freddie Mac, HUD loans, credit union loans, loans from life insurance companies, commercial mortgage backed securities (CMBS) loans, and other types of loans depending on the specifics of the commercial property.

Refinancing a Commercial Real Estate Property in Arkansas

I wouldn't quite call this a separate type of loan, but I have to mention refinancing in here. These are typically permanent loans (but not always) used to pay down an existing, partially amortizing or interest-only loan.

Often you may be able to time a refinance to happen after an interest rate drop — an ideal solution — but if your loan is maturing during a period of higher rates, you shouldn't stress too much about this. We'll work with you to find the best loan terms for your commercial property by reaching out to potentially thousands of lenders. Just complete the form below, and we'll get to it.

Construction Financing

Construction financing, also known as interim financing, is used to finance the cost of construction for commercial properties. It is usually a short-term loan that covers the cost of land development and building construction. Once construction is completed, the borrower can typically convert this into a permanent loan or pay it off with a new loan.

Bridge Loans

Bridge loans are a type of short-term loan that can be used to cover costs in the interim period between the end of one loan and the beginning of another. They are typically used in commercial real estate to finance the transition between construction financing and permanent financing. Bridge loans generally have higher costs than most other financing options and are often interest-only and non-recourse.

Commercial Real Estate Loans by Type

Depending on the purpose of your loan, you will have several financing options available to meet your investment goals. Read below to learn more about specific loan types.

Bank Loans

Bank loans are a common financing option for commercial real estate in Arkansas. They can offer competitive interest rates and flexible terms, but the specifics can vary greatly from bank to bank. While they may not always be the best fit for larger, more complex projects, they can be an excellent option for smaller, simpler properties.

Life Company Loans

Life company loans are typically used to finance high-quality assets in major markets. They generally have lower loan-to-value ratios than most other loan types but offer competitive interest rates and long terms. However, they may not be suitable for riskier projects or properties in less established markets.

Agency Loans

Agency loans, offered by government-sponsored entities like Fannie Mae and Freddie Mac, are typically used for properties that are mostly multifamily. They offer attractive loan terms, low, fixed interest rates, and are non-recourse. However, there are restrictions on the amount of income that can come from other commercial uses.

HUD Loans

HUD multifamily loans are government-backed loans that are primarily used for the construction, substantial rehabilitation, purchase, and refinancing of multifamily properties. These loans offer long-term, non-recourse financing with competitive interest rates but have extensive requirements for qualification.

CMBS Loans

Commercial Mortgage Backed Securities (CMBS) loans are a type of mortgage-backed security backed by commercial real estate loans. Lenders focus more on the strength of the property than the borrower's credit, making them a good option for properties with strong cash flow.

SBA Loans

Small Business Administration (SBA) loans, such as the SBA 7(a) and SBA 504, offer attractive financing options for small businesses. However, the maximum amount for an SBA 7(a) loan is $5 million, while SBA 504 loans can go up to $20 million. They cannot be used for multifamily properties and are only available for properties that the business owner occupies.

Mezzanine Loans

Mezzanine financing is a hybrid form of financing that combines elements of debt financing and equity investment. It is typically used in commercial real estate to fill a funding gap between the primary loan and the total cost of a project.

Commercial Property Insurance in Arkansas

This part isn't about loans, but it's just as important to your investment's success. Let's talk (quickly) about insurance.

Insurance premiums have skyrocketed in the past few years, as I'm sure you know. While multifamily gets a lot of the attention, rates for insuring anything from office buildings to shopping centers have jumped significantly.

Janover Insurance Group is dedicated to finding the best insurance solutions for your commercial real estate assets in Arkansas. Click to get a free insurance quote for your property — no obligation.

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• Little Rock