Lending Momentum Index Edges Up for First Time in a Year

Acquisition financing in the industrial and multifamily sectors, reduced credit spreads, and the growing demand for large-scale data center construction loans drove improvement in the commercial real estate lending market in the second quarter of 2024, CBRE said in its quarterly U.S. Capital Markets and Lending report.

“Commercial real estate origination volumes and general activity levels are steadily picking up across all capital sources except for the commercial banks,” James Millon, U.S. President of debt & structured finance for CBRE told GlobeSt. in an emailed statement. “Bottoming of real estate values and the prospects of rate cuts should drive even greater origination activity for the remainder of the year and in 2025.”

CBRE’S Lending Momentum Index, which tracks the pace of CBRE-originated commercial loan closings in the U.S., edged up quarter-on-quarter, for the first time in over a year.

Industrial assets accounted for the largest share of loans tracked by CBRE, while multifamily and data centers, and to a lesser degree self-storage, student housing, and senior housing, were also leading sectors.

“The explosion of data center development to meet the growing demand for AI is also contributing to the quantum of debt capital and further bolstering origination activity,” Millon said.

“Retail and hospitality asset classes which historically have a limited capital source base for financing are finding strong liquidity for the right assets/portfolios,” he added.

Office remains the outlier, with limited liquidity except for CMBS (commercial mortgage-backed securities) and SASB (single-asset single-borrower) bonds at the right leverage and debt yields.

Alternative Lenders as Leading Contributors

Alternative lenders, such as debt funds and mortgage REITs, remained the leading contributors to CBRE’s non-agency loan closings. They accounted for one-third of the second-quarter total, up from approximately a one-fourth share a year earlier.

In contrast, banks trimmed their activity from a year earlier and their activity is likely to remain muted.

“Banks are expected to remain cautious due to the increase in loan extensions, limited liquidity and the potential for increased regulatory pressures,” CBRE noted in a statement accompanying the report.

The share of activity attributed to life insurance companies remained largely unchanged from the previous year, as this group continued to adopt a more selective approach.

“Looking forward, we expect continued strength in origination activity driven by large institutional financings and greater GSE participation, underpinned by declining treasuries and base rates,” Millon said. “Anticipated interest rate cuts are expected to further drive deal-making, leading to reduced borrowing costs, improved credit availability, and higher asset valuations.”