CBRE: Commercial Lending Market Resumes Momentum After Volatile Q1
Commercial lending markets, briefly derailed by credit market volatility in early 2016, got back on track by early April, reported CBRE, Los Angeles.
The CBRE Lending Momentum Index declined by 6.3 percent in Q1 2016 to 182 from its 2015 year-end close of 194. But the index showed positive momentum on a year-over-year basis, with loan closings up by 8.8 percent as of March.
“The year began with a dose of volatility unseen since August 2015, as fears over falling oil prices, economic turmoil in China and slowing global growth manifested themselves in a U.S. stock market correction,” CBRE’s U.S. Lending MarketView said. “Although this volatility spread to the debt capital markets, it was not as wide as feared, and was largely concentrated in the securitized lending markets…The good news is that the market has proven resilient.”
CBRE said the equity and bond markets fully recovered from early February’s low point. “The commercial mortgage-backed securities market also has experienced a remarkable turnaround, with spreads in high-yield markets back down to year-end 2015 pre-disruption levels,” the report said. It noted that the Fed’s recent decision to delay further interest rate increases and to reduce market expectations to two rate increases rather than four for the year further calmed markets. “As a result, a sustained period of reduced volatility should lead to compressed spreads in coming months.”
CBRE examined spreads on 55 percent to 65 percent loan-to-value permanent fixed-rate loans with a seven- to 10-year term closed during the first quarter and calculated spreads over the equivalent-term U.S. Treasury rate. Following the liquidity disruption during the recession, commercial and multifamily spreads compressed steadily; both fell below 200 basis points by late 2014. Then over the past year, healthy liquidity and a generally stable capital market environment contributed to favorable credit spreads. “However, in third- quarter 2015 credit spreads widened, consistent with increasing volatility in the corporate, agency and CMBS markets that have continued into Q1 2016,” the report said.
Multifamily spreads reached 226 basis points on average in first-quarter 2016, up 37 basis points from the previous quarter and 62 basis points above their previous low from early 2015. Commercial spreads averaged 235 basis points in the first quarter, up 22 basis points from late 2015 and 54 basis points above their most recent low recorded in second-quarter 2015. But despite recent changes, spreads remain close to 2013 levels, CBRE said.
CBRE noted that rising loan maturities, especially in the commercial mortgage-backed securities sector, will boost the demand for financing as the year progresses.
