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Commercial Mortgage Markets Ease in Q2

U.S. Lendings | Q2 2022

August 5, 2022 1 Minute Read

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Executive Summary

  • Market volatility from rising inflation and interest rates cooled the commercial mortgage market in Q2, characterized by wider spreads and more selective underwriting.
  • The CBRE Lending Momentum Index declined 7.9% quarter-over-quarter. However, the index was up 41.1% from a year ago.
  • Spreads on commercial seven-to 10-year, 55%-to-65%-loan-to-value (LTV) fixed-rate permanent loans widened by 29 basis points (bps) quarter-over-quarter to an average of 187 bps. Multifamily spreads widened by 28 bps to average 172 bps.
  • Banks replaced alternative lenders as the leading non-agency lending group in Q2. Alternative lenders’ activity was slowed by rising spreads in the collateralized loan obligation (CLO) market. CLO issuance fell to $12.3 billion in Q2 from $15.2 billion in Q1.
  • Industrywide CMBS issuance stalled in June amid market volatility and rising spreads. Spreads on 10-year AAA CMBS bond issues reached swaps +152 in early July, up from swaps +130 bps in late March.
  • Multifamily agency lending increased to $33.4 billion in Q2 from $30.9 billion in Q1.
  • Underwriting standards on loans originated through CBRE were more conservative in Q2. Average LTV ratios fell, while underwritten cap rates and debt yields increased. The percentage of loans carrying interest-only terms decreased to 58.8% in Q2 from 68.3% in Q1.
  • The Federal Reserve increased its short-term federal funds rate by 0.75% in both June and July to a target range of 2% to 2.25%. The Treasury yield curve increased and flattened during Q2 but inverted for two-and 10-year maturities by late July.