Chart of the Week: CRE Property Sales and Borrowing

Source: MBA and MSCI Real Capital Analytics

After a slow start to this year, borrowing and lending backed by commercial real estate properties picked up during the third quarter. Originations increased 59% compared to a year ago and increased 44% from the second quarter of 2024.

Lower interest rates were a key driver of the increase, with the yield on the 10-year Treasury bond dropping during the quarter from an average of 4.31% in June to 3.72% in September. Long-term rates have increased more recently, which could slow last quarter’s momentum.

Every major capital source saw increased borrowing when compared both to this year’s second quarter and last year’s third quarter. On a year-to-date basis, however, originations vary significantly. Loan volumes for CMBS are up 160%, investor-driven lenders are up 39%, and life insurance companies are up 24%. Loan volumes are down 3% for Fannie Mae and Freddie Mac and down 5% for depositories.

Volumes will continue to be swayed by ups-and-downs in interest rates, but the overall trend is likely to be upward. Loan maturities in coming years have been boosted by loan extensions – some built-in to the original loan and some agreed to by lenders and borrowers who saw such actions as beneficial to the long-term health of the deal. Add to that a higher than usual share of shorter-term, 3- to 5-year loans borrowers have sought since the onset of the pandemic and you have the potential for significant borrowing.

Short-terms rates are likely to follow the Fed’s expected lead lower, although the path and end point is still uncertain. Longer-term rates will be less dependent on the Fed’s actions than on investors’ expectations around inflation, economic growth, budget deficits, and more.

It’s important to remember that when it comes to CRE finance, every loan is unique, depending on that particular property’s type and subtype, market and submarket, borrower, business plan, vintage and more.

-Jamie Woodwell (jwoodwell@mba.org); Reggie Booker (rbooker@mba.org)