CRE Lending Remains Robust
Although lower loan maturity volumes lead to lower originations this year than last, the commercial mortgage market remains in good shape overall, reported CBRE, Los Angeles.
“The commercial mortgage lending market should remain favorable to borrowers for the balance of the year,” said CBRE Global President of Debt & Structured Finance Brian Stoffers, CMB. Stoffers serves as Vice-Chairman of the Mortgage Bankers Association. “Loan credit spreads remain tight and underwriting standards are stable. While there is some risk to an escalation of trade disputes, this has not yet influenced credit availability or pricing.”
Stoffers said the yield curve has continued to flatten in part due to an additional short-term policy rate increase by the Federal Reserve in June. As of mid-July, the spread between 10-year and two-year Treasury bonds was only 25 basis points, the tightest since before the 2008 recession, when the yield curve inverted.
With the flattening of the yield curve, borrowers with a settled capital structure and long time horizon may want to take advantage of long-term financing. “With the flat curve, borrowers can add significantly to loan terms for little additional expense,” Stoffers said.
Lending volume in the second quarter as measured by the CBRE Lending Momentum Index was even with first quarter levels. But compared to a year ago, the Lending Momentum Index is down 10.6 percent, CBRE said.
Total commercial mortgage-backed securities issuance equaled $40.5 billion in the first half, up from $37.9 billion a year ago, CBRE said. The favorable issuance activity is supported by pricing. Spreads on new-issue 10-year, AAA-rated paper have been trading in the swaps plus 75-to-85-basis point range since April after reaching lows in early February. “Many industry analysts appear upbeat about the second half of the year and expect spreads to remain close to current levels,” the report said.
Agency multifamily also remains quite active, CBRE said. Year-to-date, combined Fannie Mae and Freddie Mac multifamily loan purchase volume totaled $43 billion through May, close to the record-setting pace of $44.6 billion for the same period last year.
Overall debt service coverage and loan-to-value ratios in the second quarter were consistent with the prior quarter, the report said. The percentage of loans carrying interest-only terms equaled 61 percent, down five percentage points from the first quarter. “There has been no substantial deterioration in loan underwriting measures over the past several quarters,” CBRE said.
