CBRE: Lending Markets Strengthen
Commercial real estate lending markets continue to improve after a bout of volatility and sluggish lending volume at the start of the year, reported CBRE, Los Angeles.
CBRE’s Lending Momentum Index, which tracks commercial loan closings, increased 2.1 percent in the second quarter and 5.7 percent year-over-year.
MBA Vice President of Commercial Real Estate Research Jamie Woodwell said second-quarter commercial and multifamily mortgage loan originations rose 1 percent from a year ago and 17 percent compared to the first quarter.
“Borrowing and lending backed by commercial and multifamily properties remained strong during the second quarter,” Woodwell said. “Low interest rates combined with strong commercial property market fundamentals to further support lending and to keep overall borrowing levels on pace with last year’s strong level.”
CBRE called the increase in commercial lending volume a “promising sign,” especially in light of the heightened uncertainty at the beginning of the year. “With support from life companies, banks, agencies and other non-bank lenders, commercial and multifamily lending markets have remained highly active,” the report said.
CBRE Capital Markets Global President of Debt and Structured Finance Brian Stoffers, CMB, said he has observed continued spread tightening in recent weeks, which allowed commercial mortgage-backed securities issuers to become much more competitive in their pricing.
“CMBS lenders are now beginning to join banks and life companies in actively quoting deals, which is likely to allow lending volume to increase modestly during the second half of 2016,” Stoffers said. “While we remain cautiously optimistic, investors should prepare for additional volatility as the Federal Reserve contemplates potential rate hikes later this year and the CMBS market will have to cope with rising levels of loan maturities and risk-retention issues.”
Banks continued to dominate non-agency commercial lending markets in the quarter, accounting for nearly half of non-agency lending volume compared to 31 percent in the first quarter.
Life companies were the second most active lending group, accounting for 20 percent of lending volume–consistent with levels recorded since the end of 2015, CBRE said.
CMBS conduit lenders continued to struggle, accounting for 10 percent of loan closings, CBRE said. The report called this consistent with the share registered in early 2016 but down significantly from 2015 levels. Industry-wide CMBS issuance totaled $31 billion between January and June, well short of the $54.4 billion issued in the same period in 2015.
“Future issuance is expected to improve modestly as better loan pricing should support CMBS deal pipelines in the coming months, subject to new regulatory constraints, including risk-retention rules,” the report said. Starting in late December, CMBS issuers must retain 5 percent of every new deal issued or find a B-piece buyer willing to take on that risk under new risk-retention rules.
CBRE said real estate investment trusts, private lenders, pension funds and finance companies continue to play a significant role in filling the void left by CMBS lenders while providing attractive financing on bridge deals and other shorter-term financings. These lenders accounted for nearly 20 percent of deal volume in the second quarter, matching life companies’ market share.
