DALLAS—Commercial real estate lending slowed in the second quarter of 2023 as market uncertainty weighed on available debt capital, according to the latest research from CBRE.
The CBRE Lending Momentum Index, which tracks the pace of CBRE-originated commercial loan closings in the United States, declined by 5.4 percent from Q1 2023 and 52.2 percent when compared with the strong loan volume of a year earlier. The index closed Q2 2023 at a value of 193.
“Despite ample available debt, commercial lending has been hampered by choppy markets,” said Rachel Vinson, president of debt and structured finance, United States for Capital Markets at CBRE. “Borrowers who have to transact in the current environment are turning to shorter-term fixed loans until stability returns. Costlier credit with tighter terms continues to encourage many to sit on the sidelines.”
Banks accounted for the largest share of CBRE’s non-agency loan closings for the fifth consecutive quarter, with 43.4 percent of the total in Q2 2023, up from 41 percent in Q1 2023. Smaller regional and local banks were the most active in this space, with 25 percent of bank loans used to fund construction projects, mostly in the industrial sector. Approximately 43 percent of the loans were refinancings, while the remainder was allocated for acquisition loans.
Life companies accounted for 26.8 percent of closed non-agency loans, up from 23 percent in Q1 2023, focused on permanent multifamily and industrial loans.
Alternative lenders, such as debt funds and mortgage REITs, took 26 percent of Q2 2023 closings, up from 20.1 percent in Q1 2023, but faced challenges on floating-rate bridge loans amid wider spreads and interest rate cap costs. Collateralized loan obligations (CLO) totaled just $2.1 billion in H1 2023, versus nearly $24 billion in H1 2022.
CMBS conduit lending shrank to 3.8 percent of non-agency loan volume in Q2 2023, down from 15.7 percent in Q1 2023. Industry-wide CMBS origination reached $16.5 billion in H1 2023, down from $49.9 billion in H1 2022.
Underwriting criteria remained tight in Q2 2023, with slightly lower underwritten cap rates, debt yields, and interest rates than last quarter. Compared to a year earlier, the average underwritten cap rate increased by 43 basis points in Q2 2023 to 5.52 percent, and average loan constants rose to 6.61 percent, up from 5.43 percent a year earlier.
Government agency lending on multifamily assets totaled $27.8 billion in Q2 2023, down from $33.4 billion in Q2 2022.
CBRE’s Agency Pricing Index, reflecting average fixed agency mortgage rates on 7–10 year permanent loans, rose 9 basis points in Q2 2023 and 154 basis points year-over-year to 5.41 percent.
