Commercial Lending in U.S. Remains Strong in 2019

Fed Policy Shift Calms Equity and Debt Markets

According to CBRE Research, commercial real estate lending activity in the U.S. was strong in the first quarter of 2019, with equity and debt markets calmed by the Federal Reserve's decision to hold firm on rates. The CBRE Lending Momentum Index, which tracks the pace of commercial loan closings in the U.S, was relatively unaffected in Q1 2019 reaching 239--an increase of 17.9 percent year-over-year.

"Despite recent volatility in the debt and equity markets, the Fed's decision to leave borrowing costs unchanged has created a favorable commercial lending environment and activity has remained robust. The resulting relatively flat yield curve has given borrowers many options to consider between fixed and floating rate structures," said Brian Stoffers, Global President of Debt & Structured Finance for CBRE Capital Markets.

Banks maintained a strong origination pace in Q1 2019 as in the previous quarter, accounting for 39 percent of non-agency commercial mortgage closings--up from 25 percent a year ago and leading the four major lender categories. 

CMBS conduit lenders had a 31percent share of the market, up from their 24 percent share of a year ago. CMBS issuance in Q1 2019 was down 15 percent from Q1 2018. Most market experts expect full-year 2019 issuance to be less than 2018 volume.
 
Alternative lenders, including REITS, finance companies and debt funds, accounted for 14 percent of loan closings in Q1 2019, down from 20 percent a year ago. Despite their reduced activity in the first quarter, these lenders should play a significant role in commercial real estate finance this year, particularly in the bridge and construction lending sectors. 
 
Life companies accounted for only 16 percent of loan closings in Q1 2019, approximately half the rate of a year ago. Competitive market conditions and a slowdown in refinances are likely contributing factors.
 
Underwriting metrics on loans tracked by CBRE Capital Markets in Q1 2019--including overall average debt-service coverage ratios, loan-to-value ratios (LTVs) and cap rates--were largely unchanged from Q4 2018. The percentage of loans carrying either partial- or full-interest-only terms was 67.5 percent, up slightly from 66 percent a year ago.