Bank Loans Are Lagging Despite CRE's Recovery

The origination volume for bank CRE loans in the first quarter of 2021 was $5.1 billion, a number that represents the lowest level of loan originations in the past year.

According to data from Trepp, the origination volume in the first quarter was less than half the average volume in 2019, prior to the pandemic. The 2019 output was largely comprised of the multifamily and the industrial sectors, which accounted for 72% and 66% of the 2019 output, respectively.  Meanwhile, the lodging and office property types originated 10% and 33% of their output during that time. 

In contrast, the second half of last year was better than the first quarter of this year, posting 57% of the volume seen in 2019. 

“This was headed by the strong demand for industrial properties due to the boom in e-commerce and the increased need for distribution centers and warehouses as online retail expanded,” Trepp’s Maximillian Nelson writes in a recent report analyzing the data.”

Cap rates on new bank loan originations also paint a mixed picture of the sector, with lodging and retail sectors showing rates of 7.78% and 6.14%, respectively, in Q1 2021. These are drops from the Q3 2020 highs but not full recovery when compared to the Q4 2019 numbers, according to Nelson. 

“When comparing the pricing impact of the rise in cap rates for the two sectors from Q4 2019 to Q1 2021, we see that prices fell -9.4% and -10.4%, respectively,” he writes. “The net pricing impact (which includes revenues) saw an even larger decline, -18% for lodging and -13.8% for retail.”

On the positive side, the multifamily sector continued to perform well, seeing a 6.7% increase in sector values when compared to Q4 2019 – based on only cap rate impacts – and a more modest 1.8% net pricing rise, when occupancy and NOI impacts are factored in.” 

Losses were predominantly centered in the lodging sector, where Trepp noted losses of greater than 18% Trepp also reported a -13.8% fall in value for retail.