CRE Lending Close to Pre-Pandemic Level, Index Shows

Despite continued concerns in retail and lodging, there was a favorable capital markets environment for commercial real estate lending in Q1 2021, according to The CBRE Lending Momentum Index, which tracks the pace of CBRE-originated commercial loan closings in the US.

Overall, The CBRE Lending Momentum Index finished Q1 2021 at a value of 258, up 16.7% from the December 2020 reading. In January, it rose to a cycle high of 342. The index is now only 6% below its year-ago level. In September, lending activity hit its most recent low when it fell to 160.

In the first quarter, banks and alternative lending sources, including credit companies and debt and pension funds, were the most active.

Banks took the top spot in Q1 2021 with 39.2% of non-agency commercial mortgage originations. In what could be a promising sign that things are returning to normal, construction loans, primarily for warehouse and multifamily projects, accounted for 35% of bank originations.

“They are hitting it full force this year,” says Brian Stoffers, global president of debt and structured finance for Capital Markets at CBRE, told GlobeSt.com in an earlier interview. “The banks, especially the big money center banks, pulled back for three or four months.”

Alternative lenders accounted for 30.6% of originations in Q1. They mainly provided bridge loans across multiple property types, though they did display a preference for multifamily.

Life companies followed, providing 19.2% of commercial mortgage originations in Q1 2021. They focused on permanent loans with an average loan-to-value ratio (LTV) of 54%.

CMBS lenders were next with 11% of originations in Q1. Their issuance totaled $15.2 billion, which fell from $22.9 billion in Q1 2020. As pandemic restrictions ease and acquisition and refinance activity increases, CBRE expects higher CMBS origination volume in the second half of the year.

With so much capital in the market, credit spreads and mortgage rates remained quite favorable to borrowers. Even with the easing of underwriting criteria eased and the increase of loan proceeds, the percentage of full-term interest-only loans fell from 66.7% to 60.6% in Q1. The amortization rate increased to 26.8% in Q1 2021 from 18.6% in Q4 2020.

In addition to all of the traditional players, there are newcomers to the space. “The big new entries are really these different debt funds,” Stoffers said in the earlier interview. “I think investors are looking at risk-adjusted returns. And they’re saying, ‘You know, in this low-rate environment, these debt funds are offering pretty decent yields.’”