Retail Lending Is Back in Full Swing

LOS ANGELES—Retail lending is back in full swing, according to a recent report from CBRE that showed the first three quarters of 2014 were up 50% from the same period in the previous year. This dramatic increase is attributed to a combination of refinances and a healthy demand from investors looking for high-yield investment opportunities.

Quarters two and three were particularly strong, with activity across lender and property types. Like the other property sectors, there was competitive capital chasing deals. The report shows that in Q3 alone, 40% of the origination activity came from banks, up 6% from the previous quarter. During the three quarters, underwriting standards remained stable and 49% of the loans carried either partial or full interest-only payments.

“With more borrowers aggressively pursuing value-add deals, there is a clear sign that the risk spectrum has shifted outward in commercial real estate as investors continue to seek yield. The conditions that have supported increased liquidity for transactions remain favorable—U.S. Treasuries are falling, while the availability of both public and private real estate mortgage debt is increasing. As a result, borrowing costs for permanent, fixed-rate loans are declining and leading to increased property acquisitions,” says Brian Stoffers, global president of debt and structured finance at CBRE Capital Markets, who was unavailable for an additional comment.

The return of retail lending is great news, considering it has lagged behind the recovery of the other commercial real estate sectors. By comparison, the lending origination volume for the industrial sector during the same time period was up 31%, while the office sector saw a 20% year-over-year increase. The multifamily sector, which had led the recovery, has now seemed to level off with more stagnant growth.