The following is a guest article from Josh Darby, Vice President of Northmarq. The views expressed are the author’s own:

The retail lending landscape has reached its most favorable point in over 15 years. The COVID-19 pandemic and subsequent recovery showed lenders the resiliency of the sector, the tenants and the consumer. In the current interest rate environment, retail investors can still find positive leverage that may be more challenging for other property types.

The combination of lender confidence in the space, ample capital and increased borrower demand has sent lender appetite surging, making this an exciting time for landlords and investors. Whether it’s value-add opportunities in growth markets or stable assets in mature areas, a diverse array of financing options are available to meet the specific needs of retail property and shopping center owners.

Flexible Financing for Value-Add Opportunities

For value-add retail projects in rapidly growing regions, lenders are displaying unprecedented flexibility and creativity. These deals, often characterized by their potential to increase income through property improvements and tenant enhancements, are attracting lenders eager to help bring these business plans to life, allowing investors to optimize their retail assets and capitalize on future upside. Flexible loan structures and competitive rates are enabling borrowers to align their debt with the growth potential of these value-add investments.

Historically, this space has been dominated by banks, but the recent surge in bridge lenders (life insurance companies and debt funds) has brought alternative options and increased competition. The following are real-life examples of how we’re seeing lenders offer flexible and creative solutions:

  • Loans structured around current or future vacancy, with additional proceeds to help the borrower backfill
  • Financing the conversion of collateral to a different use
  • Hybrid options that combine both permanent and bridge/construction financing
  • Offering earn-outs if the borrower’s business plan exceeds expectations

Favorable Terms in Stable Markets

On the other side of the spectrum, retail opportunities in stable markets remain equally appealing to many lenders, particularly life insurance companies looking for duration in their portfolios.

Lenders offer highly attractive terms for assets that have maintained consistent performance. For shopping centers in established retail corridors or with strong tenant bases, these lenders can provide medium- to long-term financing solutions that enhance investment security. For example, as a response to slower borrower demand for traditional long-term financing with today’s elevated interest rates, many lenders will offer shorter terms than normal, as well as more flexible prepayment options.

Matching Debt with Deal Profiles

The key to navigating today’s robust lending landscape lies in aligning financing strategies with deal profiles. Every retail asset comes with its own unique opportunities and challenges, and ensuring financial structures match the asset’s characteristics is critical for success.

Whether it’s a high-growth project or a reliable, steady performer, borrowers must carefully match debt to deal profiles to optimize returns. Choosing the right financing is not just about rates and terms; it’s about finding lenders who understand retail and are committed to supporting its future.

The Value of Established Lender Relationships

Our strong lender relationships are proving to be a crucial advantage in today’s market. With trusted partnerships across 775 capital sources nationwide, we create opportunities for borrowers to tap into lenders with a deep understanding of the retail sector and a strong willingness to invest in these properties. This nuanced approach to financing has become an invaluable tool for landlords and investors aiming to secure a competitive edge in a rapidly evolving sector.

Visit Northmarq at ICSC Las Vegas, North Hall booth 2936H.

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