Loans Spike for Office, Industrial: CBRE

LOS ANGELES—Multifamily may remain the belle of the ball, but it's getting some serious competition. Lending volume in the office and industrial sectors rose sharply in the first half of 2014, while leveling off for apartments, says CBRE.

Loan closings in office and industrial were both up by more than 50% year over year, according to the latest Capital Markets US Lender Forum from CBRE. Retail was up by more than 20%, and CBRE is also reporting quarter-over-quarter and Y-O-Y increases in its Lending Momentum Index, thanks to an increase in investment sales volume. The index rose 11.3% between the first and second quarters, and 10.1% Y-O-Y.

“The commercial lending markets are firing on all cylinders,” says Brian Stoffers, president of debt and structured finance at CBRE. “Lending volumes for office and industrial properties are both up significantly; a sign that the lending recovery has materially broadened beyond the multifamily sector, as improving leasing fundamentals are boosting confidence. Value-added funds and opportunistic investors are also looking for value in secondary markets where capital is much more readily available than just a year ago.”

Loan activity in the apartment sector, by contrast, took “a breather” during the first half of the year, according to CBRE's report. “Multifamily lending was the linchpin of overall commercial loan activity in the depths of the financial crisis and the early stages of the recovery, due to the sector's early recovery in fundamentals and the support of the agencies. However, as the sector enters a more mature phase of its investment cycle, multifamily lending is leveling off,” with volume essentially flat on a Y-O-Y basis.

Banks were again the most active commercial lenders during Q2, when their nearly one-third share of commercial originations put them ahead of life companies and CMBS insurers by a significant margin. CBRE says banks' re-emergence as primary lenders has been driven by several factors, including lower commercial loan delinquency rates, higher levels of liquidity and a gradual loosening of credit standards.

For the near term at least, it's still a borrower's market, Stoffers comments in the report. “With spreads remaining tight, all-in financing costs are still highly attractive,” he says. “We believe that borrowers still have an ample window of opportunity to take advantage of these attractive rates. However, borrowers should be mindful of the potential for market volatility stemming from geopolitical events and the inevitable shift in Fed policy.”