A Snapshot of Where CRE Debt Markets Stand Right Now

The landscape of CRE has undergone significant transformations throughout the year. This CRE market update delves into key trends and insights to help industry professionals understand the current landscape and what to expect for the last quarter of 2023.

Lending Momentum

The market saw a 5% quarter-over-quarter decline in commercial real estate lending momentum between Q1 and Q2, reflecting a substantial 52% year-over-year (YOY) decrease.

Agency Allocations

Government-sponsored entities like Freddie Mac and Fannie Mae are currently operating at less than 75% of their allocated $75 billion each. However, they appear comfortable with this situation, prioritizing profit over volume in a departure from previous cycles.

Liquidity and High Rates

In an unusual twist, the current market stressors are primarily driven by liquidity constraints and high interest rates rather than deterioration in cash flow.

Bridge Financing Dominates

Approximately 75% of the CRE pipeline consists of bridge-to-bridge or bridge refinance requests. Limited partner (LP) equity is in short supply, making it challenging to meet capital calls. Factors such as taxes, insurance costs, and capitalization rates are affecting short-term deals that originated in 2021, even when business plans are executed successfully.

Private Capital Attraction

Institutional investors are showing strong interest in private capital, seeking higher yields. Bridge rates for high-quality projects are at 8.5% or more, while middle-market deals command rates exceeding 10%. In some cases, investors are providing small equity checks, sometimes taking a share of the coupon and general partner (GP) share.