Source: CBRE
Executive Summary
Commercial mortgage placement activity surged in Q3 2021, reflecting a vibrant property acquisitions market. Loan credit spreads remained tight, while loan underwriting eased slightly.
The CBRE Lending Momentum Index increased by 31.6% quarter-over-quarter and is now 29.1% above its February 2020 pre-pandemic close.
Lending on value-added assets remained strong in Q3, supporting debt funds and alternative lenders’ leading share of non-agency commercial mortgage origination activity.
CMBS loan origination activity gained pace, largely from increased single-asset/single-borrower (SASB) and collateralized loan obligation (CLO) issuance, lifting the sector’s share to its highest level since Q1 2020.
CBRE’s loan underwriting measures for Q3 were slightly more aggressive. Underwritten cap rates and debt yields were lower, while the percentage of loans carrying full or partial interest-only terms jumped above 61%.
Rising inflation contributed to a modest increase in the Treasury yield curve in recent weeks, especially for two-to 10-year issues. The benchmark 10-year bond reached a low of 1.24% in mid-August and recently closed at 1.54% on October 27.
Spreads on commercial and multifamily seven- to 10-year, 55%-to-65% loan-to-value (LTV) permanent loans widened slightly in Q3. Commercial spreads widened by 20 bps quarter-over-quarter to an average of 238 bps. Multifamily spreads widened by 2 bps to average 194 bps.
Multifamily agency loan production increased to $34 billion in Q3 from $24 billion in Q2. The FHFA increased its 2022 production caps by 10% to $78 billion for each agency.