The first quarter of 2023 witnessed a slowdown in commercial real estate lending activity, largely impacted by stress in the banking system and financial market volatility.
According to CBRE’s Lending Momentum Index, commercial loan closings declined significantly compared to the previous quarter and the same period the previous year.
In this blog post, we will delve into the key findings of the index and explore the implications of these trends for the commercial real estate lending landscape.
Part 1: Decline in Commercial Real Estate Lending Activity
The CBRE Lending Momentum Index reported a substantial decline of 33% in commercial loan closings from Q4 2022 and a 53.5% decrease compared to the same period in the previous year.
Factors such as stress in the banking system and financial market volatility played a significant role in dampening lending activity during this period.
This decline underscores the challenges faced by the commercial real estate sector in the early months of 2023.
Part 2: Lending Breakdown by Institution Type
Banks emerged as the dominant lending group, accounting for 41.1% of non-agency loan closings. Smaller local and regional banks, as well as credit unions, were the primary contributors to this share.
Life companies followed closely as the second-most active lending group, representing 23% of closed non-agency loans. Alternative lenders accounted for 20.2% of loan closings.
However, CLO issuance and CMBS origination volume were limited during this period, affecting overall lending dynamics.
Part 3: Key Metrics and Trends in Commercial Real Estate Lending
Various metrics and trends in commercial real estate lending were observed during Q1 2023.
Constants increased by 13 bps to 77.6%, primarily driven by an increase in interest-only loan terms. Underwritten debt yields and cap rates on closed loans rose by 29 bps to 5.61%.
Additionally, the average loan-to-value (LTV) ratio increased to 59.9% from 58.2%.
The data reflects the evolving lending landscape and changing market conditions.
Part 4: Impact on Multifamily Assets and Home Seller Concessions
The report also highlights a decrease in government agency lending to multifamily assets, which declined to $16.5 billion in Q1 2023 from $30.9 billion in the same period the previous year.
Furthermore, in the residential real estate market, 43% of U.S. home sellers provided money concessions in April.
Additionally, over 42 million Americans planned to travel during the Memorial Holiday Weekend. These statistics indicate the impact of market conditions on both the housing market and consumer behavior.
Conclusion:
The findings from CBRE’s Lending Momentum Index for Q1 2023 depict a slowdown in commercial real estate lending activity, driven by stress in the banking system and financial market volatility.
The decline in loan closings, along with changes in the lending breakdown and key metrics, emphasizes the challenges faced by the sector during this period.
It is crucial for industry participants to closely monitor these trends and adapt their strategies to navigate the evolving commercial real estate lending landscape.
Disclaimer: This blog post is for informational purposes only and should not be considered financial or investment advice. Always conduct thorough research and consult with professionals before making any investment decisions.
Reference: [CBRE Lending Momentum Index Report](https://www.worldpropertyjournal.com/real-estate-news/united-states/new-york-city-real-estate-news/commercial-real-estate-news-commercial-real-estate-lending-data-2023-cbre-lending-momentum-index-cmbs-data-for-2023-rachel-vinson
