Commercial Real Estate Lending in U.S. Show Resilience in Q1
E-mail Sign up for our free weekly newsletter
According to CBRE research, the improving US economy in the first quarter of 2021 created a favorable capital market environment for commercial real estate loans despite ongoing challenges in writing office and personal loans.
The CBRE Lending Momentum Index, which tracks the pace of CBRE-borne commercial loan deals in the US, continued to rebound, ending the first quarter of 2021 at 258 (up 16.7% from December 2020) after trading had risen to a cycle high of 342 in January. With the recovery of the commercial mortgage capital markets from last summer, the index is only 6% below the previous year’s level. Lending hit its most recent low in September 2020 when the index score was 160.
Banks and alternative lenders such as credit firms and debt and pension funds were most active in the first quarter, while credit spreads and mortgage rates remained fairly cheap for borrowers.
“Many regional banks provided capital for a variety of types of products, including standing, bridge and home loans. Alternative lenders continue to be a strong source of bridging capital for transitional assets,” said Brian Stoffers, global president of Debt & Structured Finance for Capital Markets at CBRE .
CBRE’s Lender Survey shows that after the withdrawal of life insurance companies and alternative lenders in the fourth quarter of 2020, banks ranked first with 39.2% of non-agency commercial mortgages. Construction loans, mostly for warehouse and multi-family projects, accounted for 35% of bank origins – a promising sign of a return to normal loan market conditions.
30.6% of the originations were from alternative lenders, who primarily provided bridging loans for several types of property, with a particular focus on apartment buildings.
Life insurance companies accounted for 19.2% of commercial mortgage origins in the first quarter of 2021, mostly permanent loans with an average loan-to-value ratio (LTV) of 54%.
CMBS lenders accounted for 11% of origins in the first quarter of 2021. CMBS issuance was $ 15.2 billion in the first quarter of 2021, compared to $ 22.9 billion in the first quarter of 2020. While the CMBS market got off to a modest start in 2021, it will be one for the second half of the year higher origination volume expected this year as the pandemic restrictions ease and acquisition and refinancing activities increase.
While the subscription criteria were relaxed and loan revenue increased, the proportion of interest-linked full-time loans fell from 66.7% to 60.6% in the first quarter of 2021. The depreciation rate, which measures the average percentage of the original loan portfolio that will pay off over the term of the loan, increased from 18.6% in the fourth quarter of 2020 to 26.8% in the first quarter of 2021.
