Commercial Lending Markets Strengthen in U.S.

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According to new data from CBRE, commercial real estate lending markets continue to improve in the U.S. after a bout of volatility and sluggish lending volume at the start of the year.

The CBRE Lending Momentum Index, which tracks the pace of U.S. commercial loan closings, increased by 2.1 percent in Q2 2016. The Index shows positive momentum on a year-over-year basis, with loan closings up by 5.7 percent.

The increase in commercial lending volume is a promising sign, especially in light of the heightened uncertainty at the beginning of the year. With support from life companies, banks, agencies and other non-bank lenders, commercial and multifamily lending markets have remained highly active.


 
Banks continued to dominate non-agency commercial lending markets in Q2 2016, accounting for approximately 49 percent of non-agency lending volume and increasing from 31 percent in Q1 2016. Life companies were the second most active major lending group during Q2 2016, accounting for 20 percent of lending volume, which is consistent with levels recorded since the end of 2015.

CMBS conduit lenders continued to struggle, accounting for 10% of loan closings tracked by CBRE in Q2 2016. This is consistent with the share registered in Q1 2016, but down significantly from levels recorded in 2015. Industry-wide CMBS issuance totaled $31 billion during H1 2016, well short of the $54.4 billion issued during H1 2015. Future issuance is expected to improve modestly, as better loan pricing should support CMBS deal pipelines in the coming months, subject to new regulatory constraints, including risk-rentention rules.

REITS, private lenders, pension funds and finance companies, continue to play a significant role in filling the void left by CMBS lenders, while providing attractive financing on bridge deals and other shorter-term financings. These lenders accounted for close to 20% of deal volume in Q2 2016, matching the life company market share.



"Despite macro-economic concerns, debt availability in the U.S. remains strong and we've seen a continued tightening of spreads in recent weeks that has allowed CMBS issuers to become much more competitive in their pricing. CMBS lenders are now beginning to join banks and life companies in actively quoting deals, which is likely to allow lending volume to increase modestly during the second half of 2016," said Brian Stoffers, Global President, Debt & Structured Finance, CBRE Capital Markets.

"While we remain cautiously optimistic, investors should prepare for additional volatility as the Federal Reserve contemplates potential rate hikes later this year and the CMBS market will have to cope with rising levels of loan maturities and risk-retention issues," Mr. Stoffers added.