Commercial Real Estate Lending Momentum Accelerates as ‘Wall of Capital’ Meets Strong Market Fundamentals

Commercial real estate lending momentum accelerated in the fourth quarter of 2024, supported by a substantial wall of capital and strong fundamentals across most sectors, with maturing debt expected to drive further improvement in 2025, according to the latest research from CBRE.

The CBRE Lending Momentum Index, which tracks the pace of CBRE-originated commercial loan closings in the U.S., rose by 21% from Q3 2024 and 37% year-over-year, reflecting a strong recovery in lending activity. The index closed Q4 2024 at a value of 259, well exceeding the five-year pre-pandemic average of 229.

In Q4 2024, the average spread on closed commercial mortgage loans was 184 basis points (bps), representing a 49 bps decline year-over-year and a 1 bps increase from Q3 2024. Spreads on multifamily loans narrowed by 12 bps during the quarter to 156 bps, marking the tightest spreads since Q1 2022, primarily due to compression in agency loan spreads.

“While there was an uptick in market activity in the fourth quarter, the 80 bps shift in 10-year Treasury rates and revised rate expectations, led to recalibrations in credit and equity, resulting in the deferral of some deals. Despite this, a substantial wall of capital continues to support competitive spreads across a wide spectrum of credit markets, from CMBS SASB and Conduit to CLOs, Agency, LifeCo, Bank, Repo, and Debt Funds,” said James Millon, U.S. President of Debt & Structured Finance for CBRE.

“Looking ahead to 2025, we expect a more dynamic refinancing and investment sales market, fueled by maturing debt, capital reallocation in closed-end funds, and strong fundamentals across most real estate sectors. We are particularly optimistic about the resurgence of the office occupier market for top-tier assets in major CBDs. Lenders are likely to leverage loan sales to create liquidity for strategically positioned assets and asset management-intensive properties approaching restructured maturity extensions, allowing them to navigate the evolving market landscape."

Banks accounted for 43% of CBRE's non-agency loan closings in Q4 2024, a significant increase from their 18% share in Q3 2024 and 40% share a year earlier. Banks benefited from payoffs, a more favorable regulatory outlook, and efforts to clean up balance sheets.

Life companies were the second most active lending group, accounting for 33% of non-agency loan closings, down from 43% in Q3 2024 but up from 27% a year earlier. Alternative lenders, including such as debt funds and mortgage REITs, followed with a 23% share, down from a 30% a year earlier. Notably, debt funds experienced a 72% year-over-year surge in origination volume.

The CMBS conduits sector accounted for the remaining 1.5% of origination volume in Q4 2024, down from 3% a year before.

In Q4 2024, average underwritten cap rates and debt yields decreased by 14 bps quarter-over-quarter to 5.9%. Debt yields fell by 46 bps to 9.4%, while the average Loan-to-Value Ratio (LTV) ratio increased to 64.1% from 62.8%.

Government agency lending on multifamily assets saw a substantial increase, rising by 87% to $53 billion in Q4 2024. For the full-year, origination volume grew by 19% to reach $120 billion. CBRE’s Agency Pricing Index, which tracks average fixed agency mortgage rates for 7–10-year permanent loans, decreased to 5.4% in Q4 2024 from 5.8% in the previous quarter, marking the lowest level since Q2 2023.