CRE Lending Maintains Strong Pace

CBRE, Los Angeles, said interest rate reductions and continued economic growth supported strong commercial real estate lending activity in the fourth quarter.                           

MBA Chairman Brian Stoffers, CMB, speaking last week at the MBA CREF Convention & Expo.

CBRE’s Lending Momentum Index of commercial loan closings reached 263 in December; virtually unchanged from its third-quarter close but up 4.2 percent from a year ago.

“A favorable capital markets environment for real estate continued to support strong commercial lending activity into year-end,” said Brian Stoffers, CMB, CBRE Global President of Debt & Structured Finance for Capital Markets and 2020 Mortgage Bankers Association Chairman.

Last week MBA reported commercial and multifamily borrowing and lending hit a new high during the fourth quarter, surpassing the previous record from second-quarter 2007. MBA Vice President of Commercial Real Estate Research Jamie Woodwell said low interest rates and solid property fundamentals “should help 2020 continue the trend of record borrowing and lending.”

Loan underwriting became more conservative during the quarter, marked by higher debt service coverage and lower loan-to-value ratios, CBRE said. The percentage of loans carrying either partial or full interest-only terms fell to 64.1 percent from 67.9 percent third-quarter 2019.

Stoffers said alternative lenders including real estate investment trusts, finance companies and debt funds will likely remain a plentiful source of lending capital, particularly for bridge and construction loans. Alternative lenders accounted for 41 percent of total non-agency volume last quarter, up from 29 percent a year earlier.

Among traditional lenders, life companies accounted for 21 percent of non-agency lending volume during the fourth quarter, down from 23 percent a year ago. CBRE said competition for high-quality life company product increased in the quarter, leading to the relative decline.

Fannie Mae and Freddie Mac multifamily lending volume reached a record year last year with volume totaling $148.5 billion, Stoffers noted. “The agencies will have almost $80 billion each to deploy in 2020, which should provide strong liquidity to multifamily investment,” he said.

Banks’ share of volume equaled 26 percent, down from 35 percent a year ago. Commercial mortgage-backed securities lenders accounted for 12 percent of total volume in the fourth quarter, down from 14 percent in late 2018, CBRE said. CMBS pricing remained tight; between October 2019 and late January 2020, BBB-rated corporate bond spreads tightened by nearly 30 basis points. “With tight spreads, CMBS is positioned to build on the strong issuance volume,” the report said. CMBS issuance rose to a post-recession high $97.8 billion last year.