Commercial Real Estate Lending Continues to Expand

Commercial real estate lending markets continued with high liquidity in the fourth quarter of 2021, according to a new report from CBRE. “Credit spreads on permanent loans remained tight, while underwriting standards were generally unchanged from Q3,” it read. The volume was more than eight times what December 2008 saw.

The CBRE Lending Momentum Index, which “tracks loans originated or brokered by CBRE Capital Markets,” saw 10.3% quarter-over-quarter growth and is 42.2% above the February 2020 close, which was a largely pre-pandemic baseline. An index is a mechanism to compare a series of measurements over time with respect to a given baseline number, like the way inflation is measured.

The largest share of non-agency loan closings in the period was among alternative lenders—debt funds, pension funds, and credit companies. They composed 37.7% of the activity, in part thanks to a strong collateralized loan obligation (CLO) market. CLO activity hit a record $45.4 billion last year and the current pipeline is active.

Banks took 29% of non-agency lending in the quarter, up from 24.5% the year before. The total volume was split between bridge loans (38.5%), permanent loans (35%) and construction loans (21%). CMBS-backed originations stood at 18.5%, up from 10.5% during the same period in 2020. CMBS bond issue spreads supported the higher origination levels. Life insurance companies has 14.8%, mostly in multifamily and industrial through permanent loans.

Agency lending on multifamily was $46.1 billion in Q4 and $139.6 billion for the whole of 2021. That was down 12% from 2020, which was a record year. According to CBRE’s Agency Pricing Index, which follows average government agency fixed mortgage rates for closed 7- to 10-year permanent loans were up 56 bps from 2020, now averaging 3.28%.

Loan spreads tightened in the fourth quarter, averaging 185 basis points compared to 238 in the previous quarter. Much of the tightening came from some industrial sector loans with significantly tight spreads. Without those, the average was about 201 basis points. Even then, the spread was 90 points tighter than the same period in 2020. Multifamily mortgage spreads dropped to 173 basis points, which were 28 points tighter than the prior year.

By the end of 2021, LTV ratios for permanent loans closed by CBRE Capital Markets were dropping, with commercial LTVs averaging 58.6%, which was 30 bps than the same period in 2020 but below the 61.4% pre-pandemic level. Multifamily LTVs were down to 65.3% on average; pre-pandemic, they were 66.7%.