While falling rates have boosted refinances, some investors are seeing construction opportunities
A recent decline in mortgage rates didn’t just send homeowners to their mortgage brokers to discuss refinances, but also investors looking to refinance commercial loans.
But it’s not just refinances that are starting to come back in the commercial real estate space. Ground-up construction is starting to show increases, likely in part due to the lower rates and the low prices on lumber right now.
Max Chera (pictured top), managing partner at Express Capital Financing, said many people who took out mortgages in the last three years have been waiting for this moment to make a move.
“We're seeing refis already, but we’re probably going to see more of them,” Chera told Mortgage Professional America. “We’re just preparing for it. Rates were really high in 2022, when most people at that time were planning to refi out of their original mortgages. A lot of the borrowers that we worked with prepared with lower prepayment penalty options with a little bit of a higher rate, taking a three-year instead of a five-year.
“So even though a full five-year cycle really hasn't passed since then, with rates dropping where they are, I think the drop that we're seeing already is significant enough for people to start refinancing, and we're probably going to see a lot more of that.”
Sensitive to the rate
Chera is quick to remind newer investors that current interest rates aren’t far from historical norms. The ultra-low rate environment that followed the pandemic should be viewed as the exception rather than the rule.
“I think the only reason that we find them not to be low is because we've experienced 2020 rates,” Chera said. “If you look back at historicals, we've seen a lot higher. The market still operated at full capacity, especially due to the amount of transactions that are still happening. We have a housing shortage and people still need to be able to (buy a home). The market is turning less into home ownership and more into landlord and renter relationships.”
Even with a historical perspective, some investors will always be hyper-focused on the mortgage rate. Chera encourages brokers to try to focus investors instead on the things that are actually important when it comes to the mortgage.
Sun West’s CEO Pavan Agarwal warns that without clear Fed action on QE, predictions are a “complete crap shoot,” and brokers shouldn’t stall good refinance opportunities in hopes of lower rates.https://t.co/xEylZHpHTE
— Mortgage Professional America Magazine (@MPAMagazineUS) September 22, 2025
“You're always going to have investors that are sensitive to the rate,” he said. “As the broker of the transaction or the lender of the transaction, it's our job to help the borrower realize that what really matters is the payment and the income. If I told you that I had a deal for you, and you're going to make 100% return on investment, but you're going to pay 100% interest rate, I think you would still do it, because that's what really matters at the end of the day.
“I'm sure there are buyers right now that are on the sidelines, waiting for rates to drop before they come into the market. They don't have that person that's sitting there explaining to them how the economics might make sense on the deal, and they're just looking at, ‘My rate is higher, so I'm going to make less money.’”
He explains to those customers that when rates decline, they may get the lower interest rate they were looking for, but they will also have more competition for the properties they want. That will cause prices to rise, potentially cutting into return on investment.
Construction turnaround
The numbers on housing starts and building permits indicate that both remain below the levels the housing industry needs them to be. Chera noted that they’re starting to see an increase in applications, possibly due to the lower rates or lower lumber prices.
“I would definitely say that we're seeing more applications on the ground-up construction,” he said. “It's something that we actually want to push as a product. Outside of the cost, there's a demand for it already due to our housing shortage.”
He thinks that some of the increases will come from large homebuilders who can absorb some of the additional costs more easily than smaller construction companies. But he urges brokers working on construction loans to be wary of the costs involved relative to the eventual sales price.
“You have to make sure that your pricing makes sense with how much you're able to sell the property for,” Chera said. “We are seeing more people doing developments now. You're probably going to see a lot more of the big-name developers that are doing more deals, such as DR Horton, and that's typical, because they have more capacity for it. They could build more houses on a piece of land, buy up 100 acres, and develop it.”
In fact, Chera has noted some fix-and-flippers are moving into ground-up construction instead. While this might not be true in all markets across the country, he said some select markets might have too many fix-and-flippers, which have cut into profits. Those remaining in the fix-and-flip space are instead opting for buy, rehab, rent, refinance, and repeat (BRRRR) instead.
“A lot of flippers are even trying to transition and get into the ground-up construction space,” he said. “I think also the influx of investors that got into fixing and flipping over the last 10 years has increased, which also makes the demand higher. Sellers get a little bit more, which means that the profits go down.
“A lot of investors are going the BRRRR route. Instead of selling the property for a profit, they're holding on to it for the rental income, because that's where they see the biggest value in their property.”
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