Commercial real estate loan closings declined nearly 21% year over year in the second quarter. This is the result of a pandemic-induced temporary freeze in the credit and transaction markets between mid-March and early April. This is evident from new numbers in a CBRE index.
Liquidity returned to the market later in the quarter, and multi-family agencies and certain industrial businesses were "bright spots" during the three-month period. the CBRE Lending Momentum Index found. However, other sectors suffered as lenders became more selective in their financing decisions for businesses and real estate.
“While the number of loan applications has steadily improved over the past five weeks, we anticipate that commercial mortgage markets will remain subdued for the short term, particularly for retail and hotel properties and value-added businesses. facing the greatest underwriting challenges, ”said Brian Stoffers, head of debt and structured finance for capital markets at CBRE, in a prepared statement.
"Underwriting is likely to remain conservative given the current economic conditions and the environmental issues posed by the pandemic," added Stoffers.
The total ratio of commercial mortgage-backed securities loans rose to just under 6.4% in June from 1.2% in March. June arrears reached 22.8% in the hotel sector and 17.7% in the retail sector.
Banks were the source of more than 70% of credit origins in the second quarter, a proportion of credit that has more than doubled from recent averages. Much of this growth was driven by regional banks, according to the CBRE report.
Life insurance companies had the second largest share of loans at 23%, a slight decrease from the second quarter of 2019. Most of the loans in this sector have been conservative, with credit-to-value ratios of 60% or less.
Commercial Mortgage-Backed Securities [CMBS] "Conduit lenders struggled to rebuild deal pipelines after the market disruption and sharp rise in spreads in March and April," the report said. “In addition, credit underwriting remains a challenge. CMBS's industry-wide issuance was nearly $ 30 billion in the first half of 2020, the slowest pace since 2016. "
Alternative lenders, including debt, mortgage real estate mutual funds, and financial firms, borrowed little in the second quarter, with some of those lenders struggling with liquidity issues, the report said.
Across all sources, the average credit-to-value ratio fell, while the average debt service coverage ratio and debt yield rose.
"The changes in the underwriting measures for loans reflected the underlying composition of the property types," said Stoffers. "While both multi-family and commercial underwriting were more conservative, the overall bottom line was influenced by a higher proportion of multi-family loans, which tend to be a little more aggressively underwritten than commercial."