According to global real estate consultant CBRE, U.S. commercial real estate lending markets remained strong in Q1 2018 despite recent financial market volatility, with healthy loan production volumes and favorable credit spreads.
The CBRE Lending Momentum Index, which tracks the pace of U.S. commercial loan closings, was up 3.9% in March on a year-over-year basis, but fell by 8.8% between December 2017 and March 2018.
"Despite an increase in financial market volatility, real estate capital markets remain in good shape and the supply/demand balance for commercial mortgage lending is favorable to borrowers. An unanticipated uptick in wage inflation may prompt the Fed to enact additional rate hikes, while the recent 3% breach of the 10-year Treasury could signal a sign of inflation that would result in a more typical yield curve. Nonetheless, all-in financing rates are likely to remain favorable near-term," said Brian Stoffers, Global President, Debt & Structured Finance, Capital Markets, CBRE.
A more balanced lending market has emerged in recent months, with a variety of traditional and alternative lenders issuing quotes. Life companies continued to lead other major non-agency lenders in Q1 2018, capturing more than 30% of the market. This share was down from 38% a year ago.
After rebounding in Q4 2017, banks' share of the non-agency lending market eased to 26% in Q1 2018. This share was almost even with their performance of a year earlier. While banks continue to scrutinize construction lending, they remain willing to quote business with their established customers.
CMBS conduit originators have steadily gained market share over the past several quarters, as tightening spreads have allowed them to issue very competitive quotes, especially for marginally higher loan-to-value (LTV) loans. They accounted for 24% of non-agency loan production in Q1 2018, up from 21% in Q4 2017 and 16% a year ago.
Combined Fannie Mae and Freddie Mac multifamily loan purchase volume of $15.6 billion was below the record-setting pace of $20.6 billion at the same time last year.
The percentage of loans carrying interest-only terms remained at 66% in Q1 2018, and there has been no substantial deterioration in underwriting measures over the past few quarters. The average LTV fell slightly in Q1 2018.