CBRE Lending Momentum Index Slips in Q3, Up Year-Over-Year

Commercial real estate lending markets fell in the third quarter amid rising equity prices, limited volatility and tightening spreads, reported CBRE, Los Angeles.

The CBRE Lending Momentum Index, which tracks the pace of commercial loan closings, declined slightly from the previous quarter, dropping by 4.7 percent to 226. But despite the quarterly decline, the quarter’s lending volume remained 16.9 percent higher than a year ago.

“While overall sales transaction volume is easing, high levels of maturing loans are creating demand for refinancing,” CBRE said.

CBRE Capital Markets Global President of Debt & Structured Finance Brian Stoffers, CMB–who also serves as vice-chairman of the Mortgage Bankers Association–called a recent tightening of spreads a “promising sign” that liquidity will remain favorable and mortgage rates will remain relatively low despite the volatility in various indexes.  

“Purchase money and refinancing activity during the third quarter remained robust compared to levels recorded last year,” Stoffers said.

Commercial mortgage-backed securities conduits remained the top lender, CBRE reported. CMBS origination activity accounted for 36 percent ($27.9 billion) of non-agency loans in the quarter, up 45 percent from $19.2 billion a year ago. This increase bumped year-to-date issuance to $66.6 billion, well ahead of 2016’s $49.9 billion pace. “CMBS originations have been buoyed by stable pricing and the successful formation of capital to satisfy lender risk-retention requirements,” CBRE said.

Life companies maintained their standing as the second most popular lending group. They remained a “stable” source of funding for lower-leverage loans, CBRE said, accounting for nearly one-quarter of non-agency commercial loan closings in the quarter, consistent with their second-quarter share and up slightly year over year.

Bank originations stalled during the quarter, accounting for just 18 percent of loan volume–well below banks’ 49 percent share a year ago. “Banks have been increasingly cautious with their loan underwriting, especially on construction and transitional deals,” the report said.

Other lenders including real estate investment trusts, private lenders, pension funds and finance companies, accounted for 20.8 percent of loan volume in the quarter, maintaining their share of non-agency volume year over year.