CRE Lending Rises as Capital Comes Off the Sidelines
CBRE has a new report on commercial lending momentum. With an eye to classic movies, it might as well have been called, “I’m going to make him an offer he can’t refuse.”
This is a moment many in CRE have waited for over the last few years. As CBRE put it, lending momentum has accelerated as a “wall of capital” is finally able to meet strong market fundamentals.
The firm’s Lending Momentum Index — a measure of the pace of CBRE-originated U.S. commercial loan closings — increased 37% year over year in Q4 2024, with Q3 2024 up 21% year over year. At the end of Q4, the index was 259, above the five-year pre-pandemic average of 229.
Data on closing from a single source is unlikely to be statistically representative. However, given the size and reach of CBRE, if not an accurate portrayal of everything, because almost never is business insight that accurate, it is market information worth noting.
The average spread on commercial mortgage loans was 184 basis points in Q4, a 49-basis-point drop over the previous year. Multifamily loan spreads were down 12 basis points to 156 basis points, the tightest spreads since the opening of 2022, mostly due to compression in agency loan spreads.
Tightening spreads mean lower rates and increasing attractiveness for doing deals. The lending momentum index for Q4 was by no means a peak value, but it compares favorably with some of the more active times from 2015 through 2019. There is only so long that CRE investors can put off deals to wait for better conditions.
“While there was an uptick in market activity in the fourth quarter, the 80 bps shift in 10-year Treasury rates and revised rate expectations, led to recalibrations in credit and equity, resulting in the deferral of some deals,” said James Millon, U.S. President of Debt & Structured Finance for CBRE in prepared remarks. However, the mass of dry powder that investors have accumulated — that “wall of capital” — is exerting pressure to be put to use. It is appearing in CMBS single-asset, single-borrower, conduit, CLOs, agency, life company, bank, repo, and debt funds.
The firm expects more financing activity and sales in 2025, “fueled by maturing debt, capital reallocation in closed-end funds, and strong fundamentals across most real estate sectors.” CBRE thinks that office occupier top-tier assets in major central business districts will be a particularly fruitful area.
Banks were 43% of CBRE non-agency loan closings in Q4, sharply up from 18% in Q3. Alternative lenders had a 23% share, down from 30% the previous year. CMBS conduits were 1.5% of origination volume.
Government agency multifamily lending was up 87% year over year to $53 billion in Q4.
Source: GlobeSt/ALM