‘Continued Growth and Stability’ for U.S. Lending: CBRE

Capital markets remained quite favorable in the second quarter despite increasing short-term interest rates, reported CBRE, Los Angeles.

The yield curve flattened over the past quarter, reflecting changes to the Federal Reserve’s interest rate policy, CBRE’s Second-Quarter U.S. Lending Figures report said. “Meanwhile, low expectations for inflation are holding down the long end of the curve,” CBRE said. “While normally a flattening yield curve is a sign of weaker growth expectations, the situation is unique given the low-rate environment globally. We believe the Federal Reserve may remain cautious on future interest rate increases due to sluggish growth and low inflation.”

The CBRE Lending Momentum Index found loan closings edged higher between March and June and stand 27 percent above year-earlier levels. Volume improved across all major lending groups, a sign that capital is readily available.

“Reflecting the favorable capital market environment, commercial mortgage-backed securities issuance revived in the second quarter,” lifting year-to-date issuance to $38.8 billion–well ahead of last year’s $30.7 billion pace, the report said. It noted CMBS conduits are issuing “competitive” quotes with other capital sources because bond spreads remain low and stable. “Overall spreads on commercial and multifamily loans closed by CBRE Capital Markets showed limited changes between the first quarter and the second,” CBRE said.

CBRE said loan underwriting again showed stabilization in the second quarter. Overall average debt service coverage, loan-to-value ratios and debt yields remained virtually unchanged from the previous quarter.

Looking forward, while property acquisition activity is slower than last year, CBRE said it remains “cautiously optimistic” regarding commercial real estate debt availability in the second half. “Life companies, CMBS, banks and alternative lenders are all actively issuing bridge and permanent financing quotes,” the report said. “However, we continue to find a fair degree of dispersion in loan quotes and terms across different lenders.”