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CRE Outlook: Bright Spots and Tips from A Bank's Perspective

Article by Jon Tollefson, Managing Director, Commercial Lending at Bridgewater Bank

Does the last year indicate a new normal for multifamily development and financing? This has probably been a question in your mind, as well as many others. While the last year has brought some unique trends and challenges, we believe there are a number of bright spots for multifamily investors, owners, and developers as we look out into 2025:

Fewer New Construction Projects in the Pipeline

This means lighter new product competition for ground-up developers in 2025 and 2026.

Continuing Development Trend from Urban to Suburban

We continue to see more demand for multifamily financing outside the urban cities of Minneapolis and St. Paul. This is likely driven by developers and investors wary of rent control and renter perceptions around increases in crime rates in urban cores.

Seemingly Stabilized or Contracted Project Costs for Construction Lending

This should reduce cost overruns, make project modeling more accurate, and help offset the higher cost of financing and equity.

Population Growth in the Twin Cities

The Twin Cities hosts promising population growth demographics with the addition of roughly 30,000+ people per year. These people will need somewhere to live, and single-family home affordability has materially declined, coupled with tight for-sale inventory, leaving multifamily living as a key alternative.

Mid to Long-term Interest Rates Remain Available and are Back in the Game

Numerous financing options remain open as multi-family continues to be a diversified and sought-after market segment for bank and non-bank lenders alike. 

So, what are some recommendations for multifamily owners and developers like you?

Research Your Market

It’s important to research your market for new competition, enhancements to your current competition, and impacts on your properties' current positioning.

What product type is the renter pool of 2025 and beyond going to demand? More micro-units or larger detached rental products? Both? Urban vs Suburban? Consider what renovations and/or geographies offer the best ROI, given increased product over the last few years and increasing operating costs.

Review Your Multifamily Portfolio for Maturities

Remember to review your multifamily portfolio for maturities and start working on refi options well in advance. Waiting and hoping for a better rate environment is not a recommended strategy. Keep your maturities laddered to avoid a portfolio refinance risk (rate and terms).  

Consider all Aspects of Your Term Loans

When does working with a bank like Bridgewater make sense? Do you need flexibility on pre-payment penalties to accommodate your properties' disposition plans?

When could you use financing solutions for the combined acquisition and repositioning of existing properties? Keep in mind recourse flexibility, loan structuring, and estate planning considerations.

Know that Bridgewater Remains Bullish on Multifamily in 2024 and Beyond

We expect and see continued opportunities to finance term and construction loans for multifamily properties in the remainder of 2024 and beyond. The Twin Cities metro is growing, and housing is an ongoing need.

While we recognize that meaningful headwind issues existed in 2023, things feel stable now. We also recognize that the Twin Cities is fortunate to have many skilled multifamily developers and investors who can navigate these times and continue to grow.

At Bridgewater, we are dedicated to being a trusted and responsive partner, leveraging our multifamily financing expertise, robust experience, and knowledge of the local market to maximize our clients’ success. Our local experts are happy to share our multifamily financing expertise and track record with you whenever the time is right.

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