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The first quarter of this year saw a notable slowdown in commercial real estate lending in the United States. This trend raises questions about the future of the market and potential impacts on property development and investment. Analysts are closely monitoring this development for its broader economic implications.
In Q1 2024, the U.S. commercial real estate lending market saw a slowdown due to high interest rates and limited credit availability, though credit spreads showed signs of stabilizing, according to new data from CBRE.
The CBRE Lending Momentum Index, which tracks CBRE-originated commercial loan closings, decreased by 11% from Q4 2023 and by 32.7% compared to Q1 2023, closing Q1 2024 at 168.
Credit spreads between the 10-year Treasury yield and fixed-rate permanent commercial loans tightened by 22 basis points (bps) quarter-over-quarter to 212. Multifamily spreads also tightened by 17 bps to 175.
James Millon, U.S. President of Debt & Structured Finance for CBRE, noted an uptick in activity driven by institutional investors seeking to recycle capital, with an increase in BOV activity and financings over $100 million. CBRE's lending volume in Q1 2024 increased compared to the same period in 2023.
With investment sales down, there's a shift towards hard maturity refinancings, construction loans, and bridge lending. While commercial banks are reducing their presence, other lenders like agency, life companies, CMBS, and debt funds continue to support credit availability.
Alternative lenders, including debt funds and mortgage REITs, accounted for 47.2% of CBRE's non-agency loan closings in Q1 2024, up significantly from a year earlier. Banks were the next most active group, followed by life insurance companies and CMBS conduits.
Underwriting criteria saw slight changes, with stabilized average underwritten cap rates and debt yields. The average LTV ratio increased, while loan constants declined from Q4 2023.
Government agency lending on multifamily assets decreased in Q1 2024, with the Agency Pricing Index reflecting fluctuations in average fixed agency mortgage rates.
Source: World property Journal
