March 2023 Capital Markets Recap

Tim Milazzo
April 5, 2023

CEO Tim Milazzo and Director Huber Bongolan recently went live to share a comprehensive update on the current state of commercial real estate capital markets. Follow us on LinkedIn to be notified about upcoming live events.

Press play below to watch the webinar: 

Not able to listen? Read the full transcript from the discussion here:

Hello and welcome to the April update of the commercial real estate capital markets looking back at March. So we are talking about data and news and insights for March 2023. It has been an eventful month in the commercial real estate capital markets. So I'm Tim Milazzo, founder of StackSource. I am here with my co host Huber Bongolan, Director of Capital Markets at StackSource and I think we have a lot of good stuff to discuss. So we're going to start with news and what is at the forefront of the capital markets talk for March 2023. 1st things first, Silicon Valley Bank was the first major domino to fall and when I say domino, there have been a few high profile banking failures. In March 2023, Silicon Valley Bank was actually the second largest bank failure in US history. We've seen that be followed up in recent weeks with trouble in the European banking sector. Credit Suisse is the big name over there and their merger with UBS. And there's a question here about what will happen next in the banking sector. There have been a few high profile failures, including the second and third largest failures in US history.

Are those going to become hundreds of failures? We don't know. But in March there have been some high profile failures and it is putting question marks in the banking sector. Second thing that is making headlines from March is the treasury yields curve. Huber is going to walk us through what that looks like and where rates are going in a second. But one thing to know right away, the two to ten year treasury spread is still inverted, but it's dropped from 88 basis points inverted to 58 basis points inverted. So the 2/10 year spread is getting tighter, it is still inverted. That is still a recession signal classically. Lastly, the Federal Open Market Credit Market Committee so the Federal Reserve and their decision makers decided to continue with the rate increases for short term rates and they've gone up by 25 basis points. There was talk of 50 basis points. There was some speculation that they might stop the increases of interest rates based on what's happening in the banking sector. The Federal Reserve and Fed officials did say that they weighed potential pauses of those interest rate increases based on those competing economic signals. But they did make the choice to increase the overnight lending rate by 25 basis points.

And so that is news from the Federal Reserve from March. Huber, can you walk us through more? What's happening with interest rates? Where have they trended over the last month?

Perfect. Excellent. So this graph here shows you that trend line. There are four different rates that we're trending here. One is inflation, the ten year US Treasury, the two year US Treasury and of course term SOFR. One of the welcome sites that you can see on this graph here is that inflation is starting to trend down in response to that, of course, was the treasury starting to tick up and continuing that tick up. We just had the FOMC meeting where they announced an additional 25 basis points. Tim just talked about that. So it'll be interesting to see in the months ahead what happens to these trend lines. Does inflation continue to trick down as well as these Treasuries continue to go up? But here you can see those trends over the past year, over the past two years on where they've been and where they are currently.

So what is that doing to commercial mortgage rates today? If I'm someone buying or developing a commercial property, I see Treasuries going down, I don't see SOFR going down. What does that do to my borrowing costs?

So your borrowing costs, if they continue, if rates continue to go up, your borrowing costs absolutely go up because you have to pay a higher interest rate to commercial lenders if they trend down like we've been seeing in the past week or so. So that was the long term kind of two year graph that you saw. But if they trend down and you are going into a long term fixed debt, then your interest borrowing costs go down. So here in this chart that you see are the different types of commercial providers. You'll see agencies at the top, CMBS, regional banks, life insurance companies, debt funds, as well as HUD providers. And the interest rates is more of the spectrum of the lower bound and the upper bound that these types of providers typically range within the lower bound and upper bound of interest rates, depending on a lot of different factors, risk on the deal, duration, so on and so forth. But if you can see it at the bottom or you can go to our website at, we are tracking these rates daily. So for the most up to date information you can visit us at so that you can see if you are in a deal or if you are creating a pro forma or analysis of your current deal, what it would look like in today's market for specific types of loan programs.

You can go there to see where rates are at today.

Yeah, it's a welcome sight to see so many five handles in the banks, credit unions and in the agency space when we've seen a lot of sixes and sevens even as recently as February as the Treasuries are ticking back down for sure. Some other things that we're seeing as far as deal structure, one overlying theme as there is economic uncertainty, we are seeing lenders and capital sources fly to quality. So we're saying flight to quality here. That means quality deals, sponsors and locations. So first of all, regional banks and credit unions, it is not lost on them what has happened to Silicon Valley Bank and others. They're becoming more cautious on commercial real estate loans. Not many banks are closing their doors entirely and the way that they can become more cautious can be lower leverage, can be flying to safer asset classes and to larger sponsors. But they are being very cautious and some banks and credit unions are closing their doors on quoting new commercial mortgage loans at this time. Second, lenders are really renewing their focus on borrowers financial strength and liquidity. And this is both banks and regulated entities. This is debt funds as well.

Nobody wants to be left with a borrower who has their liquidity drop out, can't complete a property development, can't lease up units if they become vacant and the lender doesn't want to see losses in their book. And so that affects both debt funds and private lenders. That affects banks. So there is a renewed focus on the borrowers financial strength because if the economy were to fall further and if borrowers lose liquidity, they want to make sure there's cushion. Huber, what else are we seeing in this deal structure perfect.

So third bullet point there, guys favored asset classes amongst lenders. So one of the things that StackSource that we try doing is staying on top of the capital markets. How are our lenders trending and what asset types are seeing the most favor as well as maybe things falling out of favor. So bullet 3 guys, favorite asset classes of the month or maybe of the period is grocery anchored retail, self storage and industrial. And you can see the theme here that flight to quality. These are strong asset types. Grocery anchored retail. They withstood the pandemic within their essential services. Those were the types of things that lenders really were interested in. That was bullet 3 and four kind of has to do with that deal structure. That second part of the title here, transitional lenders. Those are short term bridge lenders usually lending on opportunities that require about one to three year durations. They're much more open to these bridge to bridge takeout finding out opportunities. We're seeing their comfortability with those types of situations. So what is bridge to bridge? It's a situation where your client is currently in a bridge deal that maybe was originated six months to a year ago.

They're starting to hit maturity and for some reason or another, maybe currently what's going on in the market, they need more time, they need more dollars. So their current bridge loan, instead of the original business plan where it was to get a takeout permanent, more stable type financing and long term financing, they need another bridge loan to take them out. So in our conversations currently we're seeing a lot more bridge lenders where maybe two years ago, three years ago they didn't want to take out a previous bridge lender. Now they're much more open to those types of opportunities. Given the current state of the market.

We'll see if we'll see increasing numbers of perm to bridge takeout financing requests depending on what rates and cap rates do in the coming months and non favored asset classes for sure as well. But that's a good point on bridge to bridge. Well, if that's what we're facing today in the capital markets and that's how lenders are viewing and capital sources are reacting to the current activity, what are you seeing for the months ahead?

Huber so, for the month ahead, it's going to be hard for anyone in a refinance situation that was banking on interest rates staying low. Maybe you were in a three year deal if you had originated the loan three years ago, five years ago, and you were in that lower interest rate environment where rates were in the twos, threes, four, 5%. We're seeing a lot of fixed rate deals being quoted, as you saw in the slides before, five, six, seven. So it'd be very important for sponsors to look at their cash flows and if they have a refinance coming up, start preparing for that. Can the current cash flows of your properties justify a refinance at a five or 6% interest rate? Currently, in the months ahead, we're going to start seeing a lot more maturities that are facing those types of questions. And hopefully it doesn't lead to a default. Hopefully it leads to being able to work it out. But those will be things that sponsors need to consider, especially in 2023.

Awesome. So as far as rates with the bond traders, is there a disagreement here between them and the Federal Open Market Committee about where rates are going to go?

Yes. Thank you. So on this slide, we'll start with bullet point one. When it comes to the next meeting that's in May, as well as future meetings this year, bond traders will be looking closely at what is it that the FOMC is looking to do? Are they going to continue to fight inflation by increasing rates or are they going to lower those rates later on in future meetings? That would be bullet 1. The second one that you see here is eyes and scrutiny on regional banks. What is the Fed, what is the FDIC? What are these institutions that we have? How are they going to help the situation? Will there be bailout activity? So there'll be a lot of eyes on it, as well as will additional regional banks follow in the same suit? Will that news continue to come out? And then lastly, that you see here is a slowdown in investment sales activity. You may have seen it in the news. Q1 data has come out. Q4 data last year has come out. So you're starting to see a trend line of slowdown in investment sales. But will they remain subdued despite Treasuries going lower, or will they eventually start picking back up?

So those will be data dependent. But you're starting to see the headlines right now come out of lower investment sales activity these last few quarters.

Yeah. And it's been severe for a lot of areas of commercial real estate. I know multifamily investment sales in particular have been very slow and in states that are not favored, in asset classes that are not favored, we see a lot of large brokerages laying off support staff and trying to keep their best brokers happy and satisfied until activity picks up. So I think the investment sales activity is going to be an interesting to watch thinking how long can brokers and brokerages wait for their next commission opportunities as activity is expected to pick back up. So it's interesting. So as we are about to transition into question and answer. If you are watching Live and we know that many will be watching the replay, but if you're watching Live, go ahead and drop questions into comment box on the social media or video platform of your choice. We're live across LinkedIn, Facebook and YouTube right now, but feel free to drop in questions or to email questions to and we'll be taking questions in a minute. As far as about StackSource, Quick Promo is that we are an expert capital advisory team. We work on commercial financing assignments across the country.

We bring transparency because in addition to being an awesome team of Capital Advisors, StackSource also has software engineers building a web platform showing you your matched lenders, showing you capital opportunities that you can pursue for your given commercial real estate asset. We have now arranged more than $1.5 billion of financing across the country, launched a few years ago and we're one of the fastest growing commercial mortgage and commercial financing shops in the country. Quick promo over. Let's get to questions and answers and keep talking business. Huber, I have a couple of questions here on the side. I'd love to start with you on a couple of these and get your thoughts and as more live questions come in, we can field those as well. You did touch on interest rates and where they might go with the bond traders. The question I have here is with rising interest rates, how are bridge lenders viewing interest reserves? Could you give our viewers a quick definition of interest reserves and then how is that changing today?

Sure. So when we talk about interest reserves, we're talking about the debt service payments that you owe to the lender. And in that first part of the question, I think you said how are bridge lenders viewing interest reserves? So we talked about it earlier. Bridge lenders are those transitional type lenders that are loaning out dollars for about six months to maybe three year durations, typically six months to three years. Now within that six months to three years, there's interest payments that are needed to be paid. Usually those are interest only. So a typical structure you might see with a bridge loan, let's call it a two year loan, that's needed, that's taken out and the interest rate is at 9%. That's paid interest only. So instead of being amortized instead of any principal being paid along with a mortgage payment, it's just interest. So at maturity you're going to owe whatever you paid in interest plus that same principal balance that you started with. If you took out a million dollar loan, it's still going to be a million dollars at the maturity. So when it comes to interest reserves, what lenders in this space typically do is they'll bake in that 9% interest reserve into the loan.

So that way you're not actually paying out cash coming from your pocket. It's part of the loan proceeds. Right? So yes, on Excel, money is changing hands. But as far as you as the client having to pay for it, it typically comes out of this reserve that the lender sets up. Now the question again is how are Bridge lenders today in this market viewing interest reserves? So if typically previously they were allowing for interest reserves to be part of the loan, we're starting to see a trend that with lenders being more cautious, they're giving out less leverage. And if they're giving out less leverage on a deal, then this interest reserve, instead of it being part of the loan, they're actually starting to ask clients to pay for it current. It's called current pay or pay current, where every month now there's actual dollars coming from the client to the lender. There's actually money that you have to pay, rather it being accrued and then just paid at the end when you refinance out the lender. So for some sponsors that can present a problem. And that's why I would really suggest if you have a professional buyer side, if you hire someone here at StackSource, they can help you negotiate and really navigate those channels in order to make sure the deal that you have what is possible.

What is not possible. Someone's there negotiating for you to get if they can get that interest reserve as part of the loan. So that way you're not actually having dollars coming out of your pocket.

Got it. So it's like a double whammy where a DSCR stress test is already limiting your loan proceeds on a leverage basis. LTC probably an LTC basis for something like Bridge. But the double whammy is needing to bring more cash just to cover a reserve account. Is that the right way to think about it?

That's correct. Yeah. If you have to and you need that reserve account, you'll have to come in because the leverage dealers are being more cautious and they're not so willing or aggressive to give you more leverage on a deal.

Yeah. Okay. So all else equal, I mean, buyers and investors are losing purchasing power right now. So interest rates are higher, they're going to have to cover reserve accounts, DSCRs are going to be lower. And on top of it all lenders want more liquid borrowers as far as a percentage of the loan amount. So need more cash losing buying power having to down cycle like assets you're looking at if you have a fixed amount of equity to invest.

Yeah, exactly. It's like we talked about earlier, caution. Right. Well, this is what caution looks like. This is what caution actually translates to when it's good. They're being cautious now. What are the repercussions? These are it.

Okay. We have a question here about whether we have a crystal ball and do we think rates are going up or down. Let me just as I hand over to Huber on this one. StackSource is not an economic forecasting firm. So we do not have not only not a crystal ball, but we wouldn't have an official economic forecast for StackSource either. So StackSource Inc. Does not have an opinion on this. Now, Huber the human, do you have an opinion on where you think rates are going? I mean, you mentioned the FOMC versus the bond traders. Any more color to add?

I have an opinion. But again, I love how you preface this with that, because exactly. No one has a crystal ball. And there's going to be articles that have already been written that are currently in the process of being written because it makes headlines whenever anyone, especially if they have an economic degree tied to them or a backing, publishes what they think is going to happen, and they're in a position of authority. People are going to listen. So that is the preface. But what do we know? We do know that there's a difference between what the Federal Reserve has said, what Jerome Powell at its FOMC meeting has said, and continues to state, as well as what these bond traders are thinking. He has said Jerome Powell and the Federal Reserve has maintained the position that they will stay data dependent, that they are not looking and don't expect for rate decreases, but they will be looking towards the data in order to guide future policy decisions. So that's the Federal Reserve, but bond market traders, they are pricing in and expecting that in the latter half of this year, rates will start coming down.

So those are the two differences that we do know to be true now. Huber, human being, what do I think will happen? I do think that in the next quarter, you'll start seeing employment numbers go up, unemployment numbers go up. Excuse me. You're seeing headlines for it now because companies announce it now, but it doesn't come out in the data until a quarter later. Right. So if the Fed is making decisions based off quarterly data, that is not coming out until the future. And we're seeing headlines now for increased that tend to lead to increased unemployment, it'll be very interesting to see if inflation, as we saw earlier, continues to go down and unemployment continues to go up, then that's a pretty clear sign that the Federal Reserve's hand will have to pause or start lowering interest rates. But if inflation doesn't if inflation stops balances out or inflation goes up and then the quarterly numbers for unemployment kind of stays the same. It doesn't seem to then, you'll see? But I think that unemployment will start to tick up. Hopefully, the trend of inflation continues to go down and then the Fed will slow down on their interest rates or pause entirely.

Right. I guess the worst scenario for the economy is unemployment starts to go up but inflation is still high and the Fed is forced to choose between which of their piece of their dual mandate they need to try we have a question from LinkedIn why is multifamily asset class declining in sales? Is it because of interest rates, not penciling out with cash flows? Are there other things we've noticed? I think this is in response to the comments about multifamily investment sales being one of the worst slowdowns. I'll give my quick opinion on this and Huber certainly jump in. All other things being equal if you have a low cap rate asset class and so think the darlings of this past few years of investing multifamily industrial that's what's been in the news for years and there's been a lot of investment for multifamily and industrial. If cap rates are going to rise, and let's say cap rates, broadly speaking, follow the treasury yield and they haven't followed too closely but it's also a lagging indicator if cap rates rose uniformly for all these asset classes, the low cap rate asset classes would get hurt the most.

Now, we haven't seen a lot of cap rate expansion we have seen cap rate expansion for commercial real estate and that means lower property values but we also said industrial is one of the safe favorite asset classes for lenders. So what's going on? This is all a function of demand. So if rents and the rents that multifamily owners can charge aren't increasing as a matter of fact, that demand for multifamily dipped into negative territory at the end of 2022 for the first time in the cycle. That is something that multifamily investors that were buying in the last two or three years, we're not projecting like everybody's putting in. We expect rents to rise at this rate, and when rents are rising at double digit rates, everybody's pro forma works out all of a sudden when demand goes negative. We've seen that happen in multifamily, broadly speaking, on a national scale. You obviously have to know your own local market, but we haven't seen that in industrial. Right. So in industrial, this is hard to build, we have to find the right areas. And in the key markets across the country, there's no vacancy. So there's a threat of vacancy in multifamily, but more importantly, there's been some negative absorption.

The rent growth, broadly speaking, has stopped. And I think that has been the key driver or the trigger for multifamily investment sales to slow down. That doesn't mean there aren't good projects. That doesn't mean? As a matter of fact, we're closing at StackSource. We're financing debt and equity financing for various flavors of multifamily development in high demand markets. That's the largest piece of our pipeline right now, but I'm going to buy it six months ago's cap rate. Nobody wants to get stuck at yesterday's cap rates. Today's interest rates and a negative tomorrow's demand. That is what multifamily buyers are trying to avoid. That's led to a big bid ask spread, a buyer seller spread in multifamily that's persisted for a few months. It probably will persist until interest rates come down a little further or cap rates and sellers start to admit, hey, maybe in my market, in my secondary market, we're not a favored market. We can't expect buyers to just project rent growth forever. That's my take on it. Huber, any other comments on that?

No, that was it. You nailed it.

Yeah. Okay. Another LinkedIn comment. How are large lenders reacting? And I think this is because we said regional banks and credit unions have had a lot of caution. So how are large lenders reacting? Are they equally as cautious or relatively more willing to do deals as depositors consolidate towards the big guys? Oh, interesting. So I don't know the data on how much in deposits and actual consumer deposits or business checking deposits are moving from smaller banks to larger banks, if that's happening and how much? Huber, do you have a take on this?

I can say anecdotally equally as cautious. So you're still seeing them being strict on who are the tenancies in there asking more questions, more conservative underwriting standards, again similar to Utah? I don't know that second part. Are they more willing to do deals because depositors are consulting? That'd be interesting. But as far, maybe it's too soon to tell because the news is just so soon. It's only been a month's worth of activity going on and a lot of times you're kind of looking around, who are the other big lenders, what are they doing? Right? But what I can just tell you anecdotally from conversations is even the larger lenders are equally as cautious because they don't know how far or deep this will go. No one knows.

Yeah, I would agree with that and I would even say at least as cautious. I don't see the Wells Fargo's and the major banks. They're certainly not ramping up lending to make up for any lack with community or regional banks and credit unions. I would not expect them to do that. I would not expect them to open up leverage or try to increase their lending volume at this time. A couple of things to think about. One, big banks have more economists working for them than small banks do and more of those types of connections. They're going to try to be ahead of the market versus reactive. They would be more cautious, if anything, than regional banks right now. So I would say potentially equal, but probably at least as cautious as the regional banks is what you're going to find in the JPMorgans and JPMorgan Chase and the Wells Fargos of the world. They also have billions to lose and it takes a long time to make decisions to speed things back up. So to the degree that they've already signaled caution across a lot of departments, I do not see multifamily commercial real estate lending becoming something that gets endorsement at the executive level to speed up and make up for a lack of regional bank and credit union activity.

Now I do see debt funds as part of the answer to the pullback and structured capital. So your regional bank that would have quoted 70% LTC on your multifamily development a year ago, if they're quoting at 55, how do you make up the lack in the capital stack? The answer is going to be preferred equity. It's going to be exploring alternative sources of capital. Can I get the bank to accept CPACE now if they didn't like to talk about it a year ago, is there somebody that would buy a ground lease? Underneath me there's all sorts of other private and alternative options that I would see stepping up to the plate and being more entrepreneurial than the large banks.

That's exactly right. And we'll probably talk about this in our next session because we're just starting to see this trend happening now where a lot of our equity players who are traditionally interested in JV Equity, LP Equity are starting to move towards preferred equity. So that's a little bit of a nugget for next time, next meeting, but we're starting to watch that trend.

Agreed. All right, we have a comment on LinkedIn about more regulatory scrutiny for the large banks as well and that's certainly the case and they're not going to want to have a regulator breathing down their neck and asking hard questions right now and they're going to be bigger targets than a community bank, frankly. All right, well, I think we've reached the end of our questions. If you are watching the replay, if you have a question about how this is going to affect your market, your city, your asset class or deal, please do reach out to We have Capital Advisors standing by to talk deals, to talk about financing structures. You can also ask for deal stories of recently closed financing transactions, whether that's acquisition, refi or development. We will get you in touch with your regional capital advisor and we have 20 capital advisors across the country, but it has been good talking business and market with you, Huber. Next month Huber will be back and he will be back with our colleague Chris Peters, our Director of inbound Originations at StackSource. And we'll be going over the April sentiment data and we're going to keep this going every month because you find people on LinkedIn and beyond have asked questions and it's been fun.

So thank you, everybody, for joining. This is a monthly capital markets update for commercial real estate with StackSource, and we hope you have a great month.

Thanks, everyone. Bye.

Find the right commercial real estate financing with StackSource by getting instantly matched to the best debt and equity options for your project from our nationwide network of capital sources. 

Our expert Capital Advisors help you secure your ideal capital stack, resulting in a lower cost of capital for your investments in less time and with more transparency than a traditional commercial mortgage brokerage. Learn more at