The pace of commercial real estate lending fell 7.9 percent in the second quarter of 2022 due to market volatility caused by rising interest rates and inflation, according to new research from CBRE. The firm’s lending momentum index tracks commercial loan closings in the U.S. and found that while lending declined nearly 8 percent quarter-over-quarter, it was still up 41.1 percent year-over-year. “Market volatility from rising inflation and interest rates cooled the commercial mortgage market in the second quarter, characterized by wider spreads and more selective underwriting,” said Rachel Vinson of CBRE. “We expect debt capital to be constrained for the balance of the year as lenders determine how and where to deploy capital.”
As loan underwriting became more selective in the second quarter, average loan-to-value ratios dropped as underwritten cap rates and debt yields rose. Loans with interest-only terms fell to 58.5 percent in the second quarter, down from 68.3 percent in the first quarter, according to the report. Among lenders, banks had the biggest share of non-agency loan closings in the second quarter with 38.1 percent, up more than 10 percent from the first quarter. Second to banks in terms of activity in the second quarter were alternative lenders like debt funds and mortgage REITS, which accounted for 32.2 percent of loan closings.
The dip in lending may not come as a surprise to many in the commercial real estate world, as ongoing market volatility has led many in the industry to predict a slowdown in activity. Commercial mortgage terms are changing in light of higher interest rates, with shorter-term rates on the rise. Major players in the market like SL Green have shifted strategies, and some banks have said they would slow down commercial real estate lending going forward. However, as banks pull back on lending, some alternative lenders are looking to fill the void.
