CBRE: Lending Conditions Remain ‘Favorable’

Recent interest rate increases have had a “fairly limited” effect on commercial real estate markets, said CBRE, Los Angeles.

“Investor confidence remains high, equity markets have posted new records and economic indicators are generally favorable,” the CBRE U.S. Lending MarketView report said.

Lending continues to increase, CBRE noted. The real estate services firm’s Lending Momentum Index increased 25 percent year-over-year.

“Credit spreadsd tightened in the first quarter, which is a positive sign for borrowers looking for favorable mortgage rates to acquire property or refinance existing holdings,” the report said. 

CBRE predicted construction financing may become increasingly hard to find and said it may be “challenging” to refinance some lower-quality commercial mortgage-backed securities loans, but noted that many lenders it surveyed expect to increase their mortgage volume for the rest of 2017.

Fannie Mae and Freddie Mac purchased a record $112 billion in multifamily mortgages last year, up from $89 billion in 2015. “The agencies are off to a good start in 2017,” the report said, noting that Fannie Mae and Freddie Mac purchased $30.2 billion in the first quarter, on par with last year’s record-setting pace. 

Loan underwriting grew more conservative in the first quarter–reversing the fourth quarter’s easing of standards trend, the report said. “In particular, the share of loans originated with partial or full interest-only terms dropped back to recent averages after hitting their highest level in three years in the fourth quarter,” CBRE said. 

CBRE noted more interest rate increases are ‘likely’ this year and higher market volatility remains a possibility. In addition, maturing CMBS loans with weak credit measures could face challenges and banks remains under pressure to maintain their underwriting standards. 

But despite these challenges, “there are reasons to be cautiously optimistic,” the report said. Life company, agency and non-bank lenders are active in the market and have new allocations to place mortgages in 2017. CMBS lenders have successfully tested new risk-retention deal structures and may be able to provide needed liquidity to the marketplace. Private equity funds hold record amounts of “dry powder” ready for deployment and credit spreads remain tight, which lets borrowers take advantage of low all-in mortgage rates. 

“Prospects remain solid for continued economic growth and improving property market fundamentals,” CBRE said.