Top 5 Commercial Construction Lenders of 2022
With a surge in commercial development activity — particularly in the rapidly expanding industrial sector — here are five lenders to watch when it comes to financing the construction of commercial real estate.Better Financing Starts with More Options$1.2M offered by a Bank at 6.0%$2M offered by an Agency at 5.6%$1M offered by a Credit Union at 5.1%Click Here to Get Quotes
Rebounding from a global low point in early 2020 amid work stoppages, construction and development activity has rapidly recovered. Combining all real estate sectors — including public infrastructure developments — the value of the construction market has soared globally, reaching an estimated $13.6 trillion in 2021, according to a report from Research and Markets. The new year promises to bring even more growth, with the market size expected to top $15 trillion by the end of the year.
Specifically in terms of commercial real estate, a similar trend can be seen, albeit with differences between asset types. Industrial real estate, long the darling of both investors and developers, continues to soar: CommercialEdge’s January report indicated more than 320 million square feet delivered in 2021, with close to 600 million square feet under construction at the start of 2022.
Even office construction, despite the persistence of work-from-home policies amid pandemic concerns, has kept steady. While hotel construction may take significantly long to recover, activity has not dried up.
So, who’s financing this construction activity? Finding a construction lender and navigating the often complicated requirements can be a daunting task, but we have identified five of the largest and most experienced construction lenders — in no particular order — working with commercial real estate.
Little Rock, Ark.
New York, N.Y.
Kansas City, Mo.
Starwood Property Trust
Known as Bank of the Ozarks until 2018, Little Rock, Ark.-based Bank OZK may be a surprising entry on our list, but this midsize regional bank has taken on a massive amount of construction loans in recent years. A February 2022 article in The Wall Street Journal pegged Bank OZK as having $7.7 billion in construction financing on its books in September 2021, or 42% of its total loan volume. The lender has closed a number of high-profile transactions in the past year, including $800 million of a $967 million construction financing package for a 69-story condominium high-rise in Manhattan’s Upper West Side, Commercial Observer reported.
One of the largest financial institutions in the country with total assets of $1.2 trillion at the end of September 2021, Goldman Sachs has a strong book of construction loans and has not shied away from financing a number of major developments in the past year. In July 2021, the bank partnered with Blackstone and KKR to extend a nearly $1.3 billion construction loan to L&L Holding Co. and Columbia Property Trust for the mixed-use redevelopment of the Terminal Warehouse near Hudson Yards in Manhattan, The Real Deal reported.
It should come as no surprise that Wells Fargo is on our list: With a little under $2 trillion in assets, the bank is one of the three biggest in the country. The lender has closed a number of major financing deals in the past year, as well as some notable smaller ones. For example, in January, Multi-Housing News reported the institution provided financing for an affordable housing development north of Miami focused on residents with disabilities.
Although smaller than many others on our list, Kansas City, Mo.-headquartered UMB Bank has built an impressive book of commercial construction loans across the U.S. in recent years. The institution offers a range of financing packages, from construction only to construction-to-permanent loans, in addition to providing funds for major renovations. The lender, founded in 1913 as City Center Bank, currently has 91 branches in eight states but operates a national commercial lending portfolio.
Starwood Property Trust
One of the largest commercial mortgage REITs in the country, Starwood Property Trust finances a wide range of commercial assets, with loan sizes typically upwards of $40 million. The lender has made headlines with its involvement in several massive financial deals, from the $475 million initial construction loan for Manhattan’s Hudson Yards in 2013 to a $400 million package originated at the start of 2022 for an upcoming, 1.9 million-square-foot mixed-use project in Philadelphia, as reported by Commercial Observer.
What are the best commercial construction lenders of 2022?
The best commercial construction lenders of 2022 are Wells Fargo and UMB Bank.
Wells Fargo is one of the three biggest banks in the country and has closed a number of major financing deals in the past year. It offers a range of financing packages, from construction only to construction-to-permanent loans, in addition to providing funds for major renovations.
UMB Bank is a smaller lender, but has built an impressive book of commercial construction loans across the U.S. in recent years. It offers a range of financing packages, from construction only to construction-to-permanent loans, in addition to providing funds for major renovations.
What are the most competitive rates for commercial construction loans?
The most competitive rates for commercial construction loans are typically 6.8% - 13.8%. This information can be found in the Commercial Mortgage Rates section of the website.
What are the most important factors to consider when choosing a commercial construction lender?
When choosing a commercial construction lender, the most important factors to consider are the 5 Cs of credit: credit history, current level of debt, capacity to take on more debt, collateral, and character. Lenders will also want to see a well-thought-out business plan that outlines how you intend to use the property and generate income from it, as well as proof that you have the financial resources in place to make a down payment and cover closing costs.
For more information, see What You Need to Know Before Applying for a Commercial Real Estate Loan.
What are the advantages of using a commercial construction lender?
The advantages of using a commercial construction lender include competitive floating rates at various leverage points, help managing commercial property developer risk-adjusted returns, 24-month terms, life company-financed construction, permanent loans with earn-outs, layered financing, mezzanine financing or preferred equity, and leverage as high as 85% LTC. Additionally, commercial construction lenders can provide fast funding, enabling investors to execute their real estate strategies quickly and effectively.
What are the risks associated with commercial construction loans?
The risks associated with commercial construction loans include the possibility of your monthly payments increasing significantly at the end of the interest-only period when you are required to start paying both principal and interest. Additionally, if the property’s value decreases, you could find yourself underwater on your loan – owing more than the property is worth. Before taking out a construction loan, be sure to speak with a qualified commercial real estate broker to discuss all of the risks and benefits associated with this type of financing. (Source)
We offer competitive floating rates at various leverage points. Additionally, we help manage commercial property developer risk-adjusted returns. Construction loans available include anything from 24-month terms, to life company-financed construction, to permanent loans with earn-outs. We also offer layered financing and can place mezzanine financing or preferred equity on top of senior debt to reach leverage as high as 85% LTC. (Source)