Commercial real estate lending activity remains positive after the Federal Reserve took steps to calm financial markets’ growing concerns over sluggish global economic growth and ongoing trade disputes, with two interest rate cuts in the third quarter (and one in late October), according to CBRE.
The CBRE Lending Momentum Index, which tracks the pace of commercial loan closings in the United States, reached a value of 264 in September 2019 — up 8.2 percent from June’s close. Compared with a year ago, the CBRE index is up 5 percent.
“The shift in Fed policy has supported the capital market environment for commercial mortgage originations,” said Brian Stoffers, global president of debt & structured finance for capital markets at CBRE. “Underwriting on loans tracked by CBRE became more aggressive in the third quarter, marked by declines in underwritten cap rates and debt yields, and reversing the trend from the second quarter. The percentage of loans carrying either partial or full interest-only terms rose to 67.9 percent, a new high.”
CBRE’s lender survey indicates that life companies and alternative lenders (includes REITs, finance companies, debt funds) had another strong quarter and led origination activity in third quarter 2019. Each lender group accounted for close to 30 percent of non-agency commercial mortgage closings. While banks’ market share declined slightly, CMBS lenders’ share rose.
Life companies accounted for close to 29 percent of non-agency lending volume in third quarter 2019, up from a 26 percent share in second quarter 2019 and 18.6 percent from a year ago. Life companies continue to have relatively active deal pipelines, particularly for lower leverage deals. Life company loan-to-value ratios (LTVs) averaged 56 percent in third quarter 2019, compared with an overall average of 67.2 percent.
Alternative lenders accounted for close to 30 percent of non-agency lending volume in third quarter 2019. So far this year, these lenders have gained market share, rising from 17 percent in first quarter 2019 and 25.6 percent in second quarter 2019.
Banks’ share of lending originations fell to 24.2 percent in third quarter 2019 from 35.2 percent in second quarter 2019 and 29.3 percent a year ago.
Despite some volatility, CMBS quotes have improved and many lenders have growing pipelines for the remainder of 2019. Among the originations tracked by CBRE, CMBS lenders accounted for 17.1 percent of volume in third quarter 2019, up from 13 percent in second quarter 2019 and 14.5 percent a year ago.
