When it comes to investing in commercial real estate, securing financing is often a crucial step. In New Mexico, there are a variety of financing options available for different types of commercial properties, including multifamily, office, industrial, retail, self-storage, and hospitality. Understanding the current state of the economy and real estate market in New Mexico can help investors make informed decisions about financing their commercial properties.

In this article, we will provide an overview of the economy and real estate markets in New Mexico, as well as financing options for each property type.

Economy in Review

New Mexico has a diverse economy that includes industries such as oil and gas, agriculture, and tourism. According to the Bureau of Labor Statistics, the state's unemployment rate was 7.8% as of August 2021, which is higher than the national average of 5.2%. However, the state has seen job growth in industries such as construction, leisure and hospitality, and professional and business services.

The U.S. Census Bureau reports that the median household income in New Mexico is $51,945, which is lower than the national median of $68,703. The state also has a poverty rate of 18.2%, which is higher than the national average of 10.5%. Despite these challenges, New Mexico's economy has shown resilience and potential for growth.

Multifamily Market

The multifamily market in New Mexico has seen steady growth in recent years. According to CBRE, the vacancy rate for multifamily properties in Albuquerque was 5.9% in Q2 2021, which is lower than the national average of 6.2%. The average rent for a two-bedroom apartment in Albuquerque was $1,050 in Q2 2021, which is lower than the national average of $1,357.

Financing options for multifamily properties in New Mexico include conventional loans, FHA loans, and USDA loans. Conventional loans are offered by banks and other financial institutions and typically require a down payment of 20% or more. FHA loans are backed by the Federal Housing Administration and require a down payment of as little as 3.5%. USDA loans are offered by the U.S. Department of Agriculture and are designed for properties in rural areas.

Office Market

The office market in New Mexico has faced some challenges in recent years, with high vacancy rates in some areas. According to CBRE, the vacancy rate for office properties in Albuquerque was 17.5% in Q2 2021, which is higher than the national average of 14.7%. The average asking rent for office space in Albuquerque was $19.12 per square foot in Q2 2021, which is lower than the national average of $24.13.

Financing options for office properties in New Mexico include conventional loans, SBA loans, and CMBS loans. SBA loans are backed by the Small Business Administration and can be used for owner-occupied properties. CMBS loans are commercial mortgage-backed securities that are sold to investors and can provide financing for larger properties.

Industrial Market

The industrial market in New Mexico has seen some growth in recent years, particularly in the logistics and distribution sector. According to CBRE, the vacancy rate for industrial properties in Albuquerque was 4.9% in Q2 2021, which is lower than the national average of 5.5%. The average asking rent for industrial space in Albuquerque was $7.92 per square foot in Q2 2021, which is lower than the national average of $9.23.

Financing options for industrial properties in New Mexico include conventional loans, SBA loans, and bridge loans. Bridge loans are short-term loans that can provide financing for properties that need to be renovated or repositioned before they can qualify for long-term financing.

Retail Market

The retail market in New Mexico has faced some challenges in recent years, with high vacancy rates in some areas. According to CBRE, the vacancy rate for retail properties in Albuquerque was 9.5% in Q2 2021, which is higher than the national average of 6.5%. The average asking rent for retail space in Albuquerque was $14.38 per square foot in Q2 2021, which is lower than the national average of $16.72.

Financing options for retail properties in New Mexico include conventional loans, SBA loans, and mezzanine loans. Mezzanine loans are a type of financing that combines debt and equity and can provide additional capital for properties that need it.

Self-Storage Market

The self-storage market in New Mexico has seen some growth in recent years, particularly in the Albuquerque area. According to CBRE, the vacancy rate for self-storage properties in Albuquerque was 7.8% in Q2 2021, which is lower than the national average of 9.4%. The average asking rent for self-storage space in Albuquerque was $0.89 per square foot in Q2 2021, which is lower than the national average of $1.19.

Financing options for self-storage properties in New Mexico include conventional loans, SBA loans, and construction loans. Construction loans are designed for properties that are being built or renovated and can provide financing for the construction process.

Hospitality Market

The hospitality market in New Mexico has faced some challenges in recent years, particularly due to the COVID-19 pandemic. According to CBRE, the occupancy rate for hotels in Albuquerque was 47.5% in Q2 2021, which is lower than the national average of 57.5%. The average daily rate for hotels in Albuquerque was $85.52 in Q2 2021, which is lower than the national average of $107.05.

Financing options for hospitality properties in New Mexico include conventional loans, SBA loans, and bridge loans. SBA loans can be used for owner-occupied properties, while bridge loans can provide short-term financing for properties that need to be renovated or repositioned before they can qualify for long-term financing.

Commercial Real Estate Loans by Purpose

There are many types of loans available for commercial properties in New Mexico, 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 New Mexico

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 New Mexico. 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 New Mexico

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 New Mexico. Click to get a free insurance quote for your property — no obligation.

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