Commercial Lending Market Remains Positive
- With two interest rate cuts in Q3 and one in late October, the Fed took steps to calm markets’ growing concerns over sluggish global growth and ongoing trade disputes.
- The shift in Fed policy supported the capital market environment for commercial mortgage originations. In addition, benchmark 10-year Treasury yields fell below 2% in July and remained well below this level through late October.
- Mirroring the corporate bond market, CBRE’s measure of spreads on closed fixed-rate commercial and multifamily loans remained tight in Q3. Spreads on benchmark 10-year AAA-rated CMBS bonds have widened to swaps + 95 basis points (bps) recently, the high point of a range that had a low of swaps +80 bps in August.
- Lending activity increased in Q3. The CBRE Lending Momentum Index closed at a value of 264 (2005 = 100) in September, up by 8.2% from June’s close. Compared with a year ago, the index is up 5%.
- CBRE’s lender survey indicates that life company and alternative lenders led origination activity in Q3. Each group accounted for close to 30% of non-agency commercial mortgage closings. Banks’ market share declined slightly, while CMBS lenders’ share rose.
- The multifamily agency originations market remained quite strong in Q3, on a record-setting pace. Year-to-date through September, Fannie Mae and Freddie Mac combined loan purchase volume totaled $112.8 billion versus $90.7 billion for the same period a year ago. The FHFA announced a new volume cap that limits total production to $100 billion for each GSE over the five-quarter period starting this October.
- Reversing the trend from Q2, underwriting on loans tracked by CBRE Capital Markets became more aggressive in Q3, marked by declines in underwritten cap rates and debt yields. The percentage of loans carrying either partial or full interest-only terms rose to 67.9%, a new high.