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Despite challenges in the banking system and financial market volatility, CBRE’s latest research highlights a resilient performance in the first quarter, showcasing a controlled deceleration in commercial real estate lending.
The CBRE Lending Momentum Index reflects a slight adjustment in the pace of CBRE-originated commercial loan closings in the U.S., showing a 33% decline from the fourth quarter of 2022, while considering the robust loan volume of the previous year, there has been a 53.5% decrease.
Rachel Vinson, President of Debt & Structured Finance, U.S. for Capital Markets at CBRE, highlighted the Federal Reserve’s dedication to curbing inflation through proactive rate increases, leading to heightened market uncertainty during the first quarter.
In light of the abundance of debt capital, lending activity has experienced a downturn due to the upward trajectory of borrowing expenses and credit restrictions,” stated Rachel Vinson in a recent announcement.
“In an environment characterized by persistent volatility, borrowers are opting for shorter-duration, fixed-interest debt instruments with reduced call protection until the market achieves stability.
The report moreover uncovered trends within the four distinct sectors of lenders, including banks, life insurance companies, alternative lenders, and commercial mortgage backed securities (CMBS).
Banks have consistently dominated CBRE’s non-agency loan closings for four quarters in a row, securing the largest share at 41.1%, albeit a decline from 58% in Q4 2022.
The credit goes to a range of smaller local and regional banks, along with credit unions, contributing to this accomplishment.
Notably, approximately one-third of bank loans were allocated to construction projects, primarily focusing on multifamily developments. The remaining portion was divided between acquisition loans and refinancing initiatives.
In Q1 2023, life companies demonstrated impressive dynamism as they secured the second-highest position among lending groups, accounting for an impressive 23% of closed non-agency loans.
Surpassing their share from the previous quarter, life companies continued to thrive in the lending market. Notably, a significant portion of loan closings in Q1 2023 comprised lucrative five-year deals, showcasing the industry’s preference for short-term agreements.
Moreover, the overall average loan-to-value ratio (LTV) stood at a conservative 52%, indicating the cautious and prudent approach adopted by life companies.
In Q1 2023, alternative lenders, such as debt funds and mortgage REITs, maintained their Q4 2022 market share of 20.2% for loan closings, despite facing challenges due to higher spreads and interest rate cap costs for floating-rate bridge loans.
The issuance of collateralized loan obligations (CLOs) in Q1 2023 was limited to two deals worth a total of $1.1 billion, a significant decline from the $15.2 billion seen in Q1 2022.
On the other hand, CMBS conduit loans experienced a notable increase, accounting for 15.7% of non-agency loan volume in Q1 2023, compared to just 2% in Q4 2022.
However, the overall CMBS origination volume across the industry dropped to $5.9 billion in Q1 2023, down from $29.1 billion in Q1 2022.
Reference Source: DC Velocity
