Understanding The Current State of Commercial Real Estate Lending in Wichita
Wichita’s banking landscape has become increasingly competitive over the past several years. Chase Bank alone has opened three branches in the greater Wichita area as part of its expansion into the market, while other local and regional institutions continue investing in new locations and growing their presence across the city.
For commercial real estate borrowers, more banks in the market means more financing opportunities. Increased competition doesn’t just influence interest rates, it can also create greater flexibility around loan structures, amortization schedules, recourse requirements, and overall deal execution.
Yet even with more lenders competing for business, traditional financing remains challenging for many borrowers. Interest rates have remained higher than many anticipated, underwriting standards are still conservative, and leverage levels often fall short of what borrowers need to maximize opportunities.
At the same time, non-bank lenders have become an increasingly important source of capital, accounting for nearly one-quarter of commercial real estate loan originations in the fourth quarter of 2024. Source
As a result, today’s investors should look beyond simply choosing a lender. By leveraging competition among traditional banks while also exploring alternative financing solutions, investors can create a capital structure that best supports their property’s long-term goals. Here are six alternative financing solutions for commercial real estate:
Leveraging Existing Loans
1. Assumable Loans
When a seller holds an existing mortgage at a rate well below current market levels, that loan itself can become a powerful financing tool.
Consider a buyer evaluating a $1 million property who is quoted a 70% loan at 7% interest from conventional lenders — a $700,000 loan.
Rather than financing at 7%, the buyer may want to inquire if the seller has an existing assumable loan, at a lower rate.
If the seller has an existing assumable loan at 4% interest for $500,000, the buyer can take over those payments at the original rate, representing substantial long-term savings versus a new 7% origination.
However, banks have a clear financial incentive to oppose assumption: they would prefer the 4% loan be retired at closing so they can redeploy that capital at the current 7% market rate.
With competition high for lending however, more banks may be willing to negotiate an option with a modest interest rate bump perhaps from 4% to 4.5% or 5% — which still benefits the buyer compared to the market rate while partially recapturing spread for the bank, and avoids the full cost of re-underwriting, appraisals, environmental review, and loan committee review.
2. Wraparound Financing
A more creative seller-financing strategy is the wraparound loan, which can provide a solution for buyers who may not qualify for conventional financing or who lack the equity required for a traditional down payment.
With a wraparound loan, the seller keeps the existing mortgage in place and extends new financing directly to the buyer. Rather than making payments to the bank, the buyer makes payments to the seller, who remains responsible for servicing the underlying loan.
Using our example, assume the seller has an existing $500,000 loan at 4% interest. Instead of paying off that loan at closing, the seller could offer financing to the buyer at a higher interest rate—while still remaining below current market rates.
The buyer makes payments to the seller under the new loan terms, and the seller continues making payments on the original mortgage.
The difference between the interest rate charged to the buyer and the rate on the existing loan creates additional income for the seller, while the buyer gains access to financing that may be more affordable or flexible than traditional bank financing.
In the right situation, a wraparound loan can create a win-win outcome for both parties.
Note: Some parties may refer to a silent wrap, where the underlying lender is never notified that the property has changed hands. This is widely considered problematic: most mortgage documents contain an acceleration clause, which grants the lender the right to demand full repayment of the outstanding balance immediately upon discovery of an unauthorized sale. Wraparound financing should be reviewed by legal counsel and the existing lender before proceeding.
Bridging the Gap: Mezzanine Debt & Equity Partners
3. Mezzanine Lender
The most common reason deals fail to close, even when the property is strong and the lender is interested, is that the buyer simply doesn’t have enough equity.
A mezzanine lender is a specialty lender that accepts high-risk deals to fill this equity shortfall. Consider a buyer pursuing a $5 million dollar property. The bank is willing to lend 70% or $3.5 million, meaning the buyer needs to come up with the additional $1.5 million to close.
If the buyer can contribute a portion of the $1.5 million, but not the full amount, they may look to a mezzanine lender to help bridge the gap. The critical distinction from a conventional second mortgage is how the mezzanine lender’s collateral is structured.
A mezzanine lender typically does not file a mortgage against the property itself. Instead, the mezzanine lender takes a security position in the buyer’s ownership interest in the LLC that owns the property.
If the borrower defaults, the mezzanine lender doesn’t foreclose directly on the real estate. Rather, it takes over the LLC, and with it, the ownership of the property.
The tradeoff is that the buyer now carries two debt service obligations: one to the primary bank and one to the mezzanine lender, which reduces net cash flow. However, the buyer retains 100% ownership of the deal — no dilution, no partners.
Note: If a mezzanine borrower defaults, the outcome depends heavily on how the LLC agreement and loan documents are drafted. In many cases, the buyer may retain some residual economic interest but will almost certainly lose operating control of the entity.
4. Preferred Equity / Joint Venture Partners
Another alternative would be to find an equity partner who can contribute to the shortfall, not as a loan, but as a capital contribution to the LLC. Using the same $5 million example where the buyer contributes $1 million and the partner $500,000 — a total of $1.5 million in equity — the partner acquires a one-third interest in the LLC proportional to their contribution.
This structure results in only one debt service obligation (the primary bank loan), which improves cash flow.
However, the buyer’s ownership is now diluted: the partner owns one third of all distributions, and as a preferred member, typically receives their share of cash flow before the original buyer does.
The buyer found the deal, did the work, and bears the operational responsibility — but now shares one-third of the upside indefinitely.
Advanced Lending Strategies: Lines of Credit, & Sale Leasebacks
5. Lines of Credit
Another avenue buyers may wish to explore, particularly in highly competitive acquisition markets, is the use of a line of credit. The ability to make a prompt, all-cash, offer can provide a significant advantage over buyers relying on traditional financing, which may take 60 to 90 days to close.
While not all banks are willing to extend lines of credit for acquisitions, such financing is becoming increasingly common. Lenders are often more receptive when the borrower owns free-and-clear real estate that can serve as collateral.
For example, a buyer with $5 million in real estate equity may be able to secure a $4 million line of credit, reflecting a typical loan-to-value ratio of approximately 80%, similar to what would apply under a conventional loan structure.
Conceptually similar to a credit card, this line of credit means the buyer can draw funds at any time, paying interest on only on what they draw (in most cases). Additional fees may include an origination fee and annual maintenance fees.
Note: After the acquisition is completed, the buyer may refinance the property using traditional financing and pay off the line of credit in full. As such, a line of credit is best viewed as a vehicle for rapid acquisition rather than a permanent financing solution.
6. Sale Leasebacks
Sale leasebacks are a strategy used to convert real estate equity into capital, without vacating the property. Consider an aviation parts manufacturer who owns a manufacturing facility free-and-clear.
The company could use some extra capital to invest in R&D, but can’t afford to lose the space they are operating out of. Rather than borrowing against the building or taking out a loan – both of which add debt service – the company could look to sell the property to an investor and simultaneously sign a long-term lease.
The seller gets the proceeds from the sale to reinvest in his company and the investor adds a new, profitable property to their portfolio.
A Strategy That’s Right For You
When expanding a commercial real estate portfolio, it is important to evaluate all available financing options and determine which structure best supports your acquisition strategy, investment timeline, and long-term goals.
It is equally valuable to work with a real estate broker who can help facilitate these conversations and connect you with lenders who understand your needs.
As brokers, we work to build and maintain strong relationships with banks on your behalf. This allows us to help identify competitive financing options, align your acquisition with the right lender’s preferred portfolio, and position you for the best possible outcome.
Whether you are pursuing traditional financing, exploring a line of credit, or considering another capital strategy, the right financing structure can make a meaningful difference in your ability to move quickly and confidently.
By understanding your options early and working with experienced advisors, you can create a strategy that supports both your immediate acquisition needs and your broader portfolio growth.
Special thanks to our associate Randy Johnston for sharing his insights on this topic. With more than 40 years of experience coupled with his time as a financial analyst, his knowledge and expertise is a great asset to his peers and clients alike. To contact him or see if he’s the right agent for you, check out his profile here.
