Trough in Commercial Mortgage Lending May Be Near

Executive Summary

• The CBRE Lending Momentum Index fell by 3.0% quarter-over-quarter and 47.9% year-over-year in Q3, as acquisition activity remained subdued. However, the rate of decline slowed in Q3, signaling that lending activity may be bottoming out.
• Spreads on seven- to 10-year, 55%-to-65%-loan-to-value (LTV) fixed-rate permanent commercial loans tightened by 9 basis points (bps) to 218, while multifamily spreads tightened by 3 bps to 173.
• Banks remained the top non-agency lender, accounting for 38.4% of Q3 loan volume—close to one-half of which was for construction deals. Life insurance companies accounted for 33.5%, mostly in acquisition loans and refinancings for multifamily, industrial and retail properties. Alternative lenders accounted for 27.5%.
• Multifamily agency lending totaled $29.8 billion in Q3, up from $27.8 billion in Q2. Mortgage rates on closed fixed-rate seven-to–10-year agency loans rose 23 bps quarter-over-quarter and 103 bps year-over-year.
• Loan constants and underwritten cap rates increased in Q3. The percentage of loans carrying partialor full-term interest only remained high at 84%. Average loan-to-value ratios (LTVs) for commercial loans increased by 0.3 percentage points to 58%, while LTVs for multifamily loans increased by 1 percentage point to 62.5%.