LOS ANGELES—December's enactment of the tax reform package buoyed investor sentiment toward commercial real estate and contributed to a favorable lending environment, CBRE said Tuesday. The latest CBRE Lending Momentum Index, which showed a slight quarterly decline for the last three months of 2017, nonetheless also reflected more balanced participation among lender classes as well as slightly more aggressive underwriting.
“With the recent enactment of comprehensive tax reform and relatively favorable treatment of commercial real estate as an asset class, we expect continued strong investor interest in the sector,” says Brian Stoffers, global president, debt & structured finance, capital markets at CBRE. “Significantly lower maturing loan volumes in 2018 and good supply/demand equilibrium should continue to result in favorable loan spreads for borrowers.”
The index slipped by 1.2% in Q4, and December lending volume was down 15.9% on a year-over-year basis. However, loan production in December 2016 was exceptionally high, and the index for full-year '17 was up 14.5% over '16 levels.
Life companies continued to lead non-agency lenders in Q4; however, their share was 30%, compared to 34% in the year-ago period. Conversely, banks ran life companies a close second with 28.7% share, up from 18% in Q3. Even as banks remain cautious on construction lending, they're more willing to originate debt for stabilized and transitional properties.
CMBS conduit originations settled down to more normal levels in Q4 after an active Q3. For the year, CMBS issuance totaled $88 billion, up from $76 billion the year prior, says CBRE. In the current year, CMBS loan pricing fundamentals should remain favorable as fewer loans mature, CBRE says.
The GSEs, meanwhile, reached a new high water mark in the past year. Combined Fannie Mae and Freddie Mac multifamily loan purchase volume reached $139 billion in '17, compared to $112.6 billion in '16.
Q4 saw average loan-to-value ratios rise across the board while debt yields fell, according to CBRE. Also up was the percentage of interest-only loans: 66% in Q4 '17, compared to 57.8% in Q3.
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
