Each quarter, the commercial real estate institution CBRE releases its U.S. Lending Figures report, which analyzes mortgage debt in commercial real estate.
Here are my top 9 takeaways from CBRE’s Q1 2021 lending report:
1. Lending momentum is down YOY.
The CBRE lending momentum index tracks loans originated or brokered by CBRE capital markets based on a 100 baseline from 2005. The Q1 ending lending momentum was down 6% YOY. However, it is up by 16.7% compared to December 2020 and achieved an all-time high in January 2021.
2. Most non-agency loans were originated by banks and alternative lenders.
39.2% were originated by banks (up YOY), 30.6% by alternative lenders (credit companies, debt funds, pension funds — up slightly YOY), 19.2% by life companies (down YOY), and 11% by CMBS lenders (down YOY).
3. Treasury yield rate increased.
The Q1 ending 10-year treasury rate is 66 bps higher compared to Q4 2020.
4. Rising equity prices, lower volatility, and smaller corporate bond rates.
The S&P 500 closed at a new high of 4232.6 in early May, which is a 14.4% YOY increase. Volatility (measured by the VIX index) has decreased YOY and since Q4 2020. The BBB corporate index spread was down 14 bps between the end of April 2021 and the end of December 2020 (130 bps to 116 bps), which peaked at 488 bps in March 2020.
5. Commercial mortgage loan spread to U.S. Treasury tightened.
Overall spread for commercial loans was down 31 bps from Q4 2020 to Q1 2021 (275 bps to 244 bps) but is up 23 bps YOY. The spread on multifamily loans is up 7 bps in Q1 2021 and up 24 YOY.
6. Mortgage rate distribution shifted higher.
Nearly 70% of mortgages had a coupon rate above 3% in Q1 2021 compared to 59% in Q4 2020.
7. Underwriting assumption changes.
DSCR fell slightly (1.57 Q4 to 1.52 Q1). The amortization rate (a measure of the average percentage of the original loan balance that pays down over the loan term) increased (18.6% Q4 to 26.8% Q1). Percentage of full-term interest-only loans decreased (34.3% in Q4 to 17.4% in Q1). Interest rates increased (3.08% Q4 to 3.34% Q1). Debt yield decreased (8.89% in Q4 to 8.75% Q1). Cap rates were largely unchanged.
8. Loan-to-values were largely unchanged.
Commercial loan LTVs were up 1% from Q4 and 10 bps lower YOY, indicating that leverage has recovered to pre-pandemic levels.
9. Mortgage volume is up.
Agency volume was $35.5 billion in Q1 2021, up from $24.2 billion in Q1 2020. CBRE’s agency pricing index (reflects the average agency fixed-mortgage rates for closed permanent loans with a seven-to-10-year term) increased by 46 bps in Q1 2021 to 3.18%, which is down 55 bps YOY.
Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.