Commercial Mortgage Lending Slows in Q4 2022

Executive Summary

• The CBRE Lending Momentum Index fell by 15% quarter-over-quarter and 27% year-over-year in Q4 as higher interest rates continued to slow borrowing activity.
• Spreads on seven-to 10-year, 55%-to-65%-loan-to-value (LTV) fixed-rate permanent loans widened slightly for the third consecutive quarter. Commercial spreads widened 2 basis points (bps) to 192, while multifamily spreads widened 4 bps to 178.
• Banks were the top non-agency lending group, accounting for more than half of Q4 loan volume, primarily floating rate. Securitized lenders’ market share fell, reflecting sluggish volume in the commercial mortgage-backed securities (CMBS) and collateralized loan obligation (CLO) markets. Spreads on 10-year AAA CMBS bond issues widened to swaps + 195 in November, before gradually tightening to swaps + 143 in mid-January.
• Multifamily agency lending rose to $47.1 billion in Q4 from $30.6 billion in Q3. For 2022, agency lending volume totaled $142 billion, up slightly from $139.6 billion in 2021.
• Significantly higher mortgage rates and loan constants were the key feature of Q4 permanent loan underwriting measures. Underwritten debt yields and cap rates on closed loans inched up. The percentage of loans carrying interest-only terms remained high, increasing to 72.6% in Q4.