Commercial Lending Markets Show Resilience

  • The improving U.S. economy has created a favorable capital markets environment for commercial real estate lending, despite continuing challenges in office and retail loan underwriting. Banks and alternative lenders were active in Q1, while credit spreads and mortgage rates remained quite favorable to borrowers.
  • The CBRE Lending Momentum Index increased by 16.7% from Q4 2020. With the recovery of commercial mortgage capital markets beginning last summer, the index is now just 6% below its year-ago level.
  • Bank and alternative lenders led Q1 non-agency commercial mortgage origination activity. Many regional banks provided capital across a variety of product types, including permanent, bridge and construction loans. Alternative lenders remained a strong source of bridge capital for transitional assets.
  • While underwriting criteria eased and loan proceeds increased, the percentage of full-term interest-only loans fell in Q1 and amortization rates increased from Q4 2020.
  • Reflecting expectations of higher growth and inflation, the yield curve steepened, with the benchmark 10-year Treasury recently closing at 1.58%, up by 66 basis points (bps) from its December 2020 close.
  • Spreads on seven- to 10-year, 55%-to-65% LTV permanent commercial loans tightened in Q1, based on data from CBRE Capital Markets. Commercial spreads tightened by 31 bps quarter-over-quarter to an average of 244 bps. Meanwhile, multifamily spreads widened by 7 bps to average 207 bps.
  • Multifamily agency lending eased in Q1 from its robust pace in December. However, Q1 loan closings were up 46% from year-earlier levels.