Contact Us
News

CMBS, Alternative CRE Lending Evaporates

Lending for commercial real estate deals through commercial mortgage-backed securities and other nonbank, non-life company sources has nearly ground to a halt, according to a new lender survey by CBRE

During the second quarter, only around 1% of commercial real estate lending was via CMBS, down from over 12% during the same period last year. Other nonbank lenders saw a similar lending collapse, down from roughly a quarter of all loans in Q2 2019 to around 5% this year. Those lenders include mortgage REITs, finance companies and debt funds, but not life insurance companies.

“[Alternative lenders] were largely absent from loan fundings in Q2 2020, with several experiencing liquidity issues and unable to close new business,” the report stated.

By contrast, banks did over 70% of CRE loan originations during Q2, more than twice as much as recent quarterly averages, and up from just over 35% of originations in Q2 2019, the survey found.

The sharp drop in CMBS and nonbank loan volume occurred at the same time as total loan volume dropped, according to the company. The CBRE Lending Momentum Index fell nearly 30% quarter-over-quarter and was down about 20% compared with last year.

Currently, the index stands at 194, which is well down from its recent highs over 300. Even so, the current level is much higher than the index readings dropped during the Great Recession, when it was below 50 for more than a year. CBRE attributes the Q2 drop in lending to a freeze in deal volume in March and April.

“We anticipate that commercial mortgage markets will remain muted over the near-term, especially for retail and hospitality properties, as well as value-added deals, which face the greatest underwriting challenges," the report notes. 

Though CRE lending markets have been roiled by the coronavirus pandemic, underwriting standards were only moderately more conservative during the second quarter, CBRE says, with loan-to-values falling and debt service coverage ratios rising modest amounts.

Separately, the Mortgage Bankers Association reports that lending for multifamily and other commercial property deals fell 48% during the second quarter, with all property types taking a hit, particularly hotel, retail and office lending.

The second quarter saw a 91% year-over-year decline in loans for hotel properties, as measured by dollar volume, the MBA reports. The drop for retail property loans was 74%.

Lending for office deals collapsed as well, down 71% compared with the same quarter in 2019. The drop for industrial deals over the same period was 44%. Healthcare properties dropped 40%, and multifamily properties dipped 24%.

"The originations picture shows a marked divide between properties that were the most dramatically and immediately hit by the pandemic, lodging and retail, and those that have fared better, multifamily and industrial," MBA Vice President of Commercial Real Estate Research Jamie Woodwell said in a statement. "Refinancing in government-backed loans has shown the greatest resilience."