Commercial Mortgage Lending Index Down 52.2%

Commercial real estate lending has been getting tighter through 2023. And according to CBRE, commercial mortgage lending continued to slow last quarter. Its CBRE Lending Momentum Index, which measures the rate at which it originates or brokers commercial loan closings, was down in the second quarter by 5.4% from Q1 and 52.2% down from the same period in 2022.

The index’s 100 value is based on average activity in 2005. The current value of under 200 is approaching what has been the low point since June 2016 in what has at times been strong volatility. As a comparison, the high point of activity early in 2022 was nearly 550.

Banks were the top lending group with 43.4% of non-agency loan activity. That’s up from 41% in the previous quarter. Of that subtotal, 43% were refinancing, 25% for largely industrial construction, and the remaining 32% for acquisitions.

Of the total, another 26.8% or origination came from life insurance companies. In the first quarter, they were 23%. The lending was largely permanent for multifamily and industrial assets, which have been seen as largely the safest.

Alternative lending was 26% of loans, up from 20.1% in Q1. Collateralized loan obligations (CLOs) for the first half of the year were way down, from nearly $24 billion in 2022 to $2.1 billion this year, a drop of almost 91.3%.

A similarly big drop was for CMBS conduit loans, which were 15.7% in the first quarter and down to 3.8% in the second. Overall, CMBS represented $16.5 billion in the first half of this year but $49.9 billion in the same period of 2022.

The spread between closed commercial mortgages — seven-to-10 year, 55% to 65% LTV, permanent fixed-rate loans closed by CBRE Capital Markets — to 10-year U.S. Treasurys widened from 206 basis points in Q1 to 227 basis points during Q2.

The spread on multifamily mortgages was up 6 basis points in Q2 176 basis points. That’s about 4 basis points more than the same period in 2022.

“Active deal quotes in July indicate that both multifamily and commercial spreads were five to 10 basis points wider than the Q2 closed loan averages” above.

In the first quarter, 69% of loans had a mortgage coupon rate between 5% and 6%. That rose to 79% in the second quarter. A slightly larger percentage of loans with less than $10 million in origination balance in Q2 had a coupon rate of between 5.5% and 6.5%, while a slightly lower percentage of loans with an origination balance of more than $10 million had a coupon rate between 5% and 5.5%.