As the economy in Tennessee continues to grow, the commercial real estate market is thriving. With a diverse mix of industries, including healthcare, manufacturing, and tourism, the state offers a range of investment opportunities for commercial property buyers. Whether you're looking to invest in multifamily properties, office buildings, industrial warehouses, retail spaces, self-storage facilities, or hospitality properties, there are financing options available to help you achieve your goals.

In this article, we'll take a closer look at the state of the economy in Tennessee and explore the various commercial real estate markets in the state. We'll also discuss financing options for each property type, so you can make an informed decision about your investment strategy.

Economy in Review

Tennessee has a diverse economy that is driven by a variety of industries. The state is home to major corporations like FedEx, Nissan, and HCA Healthcare, as well as a thriving small business community. According to the Bureau of Labor Statistics, Tennessee's unemployment rate was 5.0% in August 2021, slightly higher than the national average of 4.8%. However, the state has seen steady job growth over the past year, with employment increasing by 2.7% since August 2020.

The state's GDP was $372.6 billion in 2020, with a growth rate of 3.5%. The largest industries in Tennessee include healthcare and social assistance, manufacturing, and retail trade. The state also has a growing tourism industry, with attractions like the Great Smoky Mountains National Park and Nashville's music scene drawing millions of visitors each year.

Multifamily Market

The multifamily market in Tennessee is strong, with high demand for rental properties in urban areas like Nashville and Memphis. According to the U.S. Census Bureau, the state's population grew by 8.9% between 2010 and 2020, with much of that growth concentrated in these two cities. Financing options for multifamily properties include conventional loans, FHA loans, and Fannie Mae and Freddie Mac loans.

Office Market

The office market in Tennessee is also growing, with demand for Class A office space in Nashville and Knoxville. The state's low cost of living and business-friendly environment make it an attractive location for companies looking to relocate or expand. Financing options for office properties include conventional loans, SBA loans, and CMBS loans.

Industrial Market

Tennessee's central location and strong transportation infrastructure make it a hub for logistics and distribution. The state is home to major distribution centers for companies like Amazon, Walmart, and FedEx. Financing options for industrial properties include conventional loans, SBA loans, and bridge loans.

Retail Market

The retail market in Tennessee is diverse, with a mix of large shopping centers and small, locally-owned businesses. The state's growing population and tourism industry make it an attractive location for retailers. Financing options for retail properties include conventional loans, SBA loans, and CMBS loans.

Self-Storage Market

The self-storage market in Tennessee is strong, with demand for storage units increasing as the state's population grows. Financing options for self-storage properties include conventional loans, SBA loans, and bridge loans.

Hospitality Market

Tennessee's tourism industry is a major driver of the state's economy, with visitors spending billions of dollars each year. The hospitality market includes hotels, motels, and vacation rentals. Financing options for hospitality properties 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 Tennessee, 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 Tennessee

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 Tennessee. 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 Tennessee

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

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