DALLAS, Texas—The commercial real estate lending market experienced continued improvement in the third quarter of 2024, marked by an increase in acquisition financing and issuance across all asset classes, including large office transactions, 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, rose by 13 percent from Q2 2024 and 15 percent year-over-year, reflecting improved lending activity. The index closed Q3 2024 at a value of 214, nearing the five-year pre-pandemic average of 229.
During Q3 2024, the average spread on closed commercial mortgage loans stood at 183 basis points (bps), marking a 35 bps decline from the previous year while remaining unchanged from Q2 2024. Notably, spreads on multifamily loans tightened slightly to 168 bps during the quarter.
“With accretive leverage achievable throughout the third quarter, we saw a notable uptick in acquisition financing compared to both the prior quarter and the same period of last year. The CMBS single-asset, single-borrower markets continued their strong issuance pace, with all asset classes represented. Notably, large office transactions in New York City underscored the return of debt liquidity for high-quality office assets backed by major institutional sponsors at conservative leverage,” said James Millon, U.S. president of debt and structured finance for CBRE.
“Additionally, the recent reduction in base rates and expectations of further Fed rate cuts have led some lenders to capitalize on the improved capital markets environment by de-leveraging their balance sheets through substantial loan sales, maximizing their recovery on these loan positions.”
In Q3 2024, life companies were the leading contributors to CBRE’s non-agency loan closings, contributing 43 percent of the total, up from 33 percent share a year earlier. Alternative lenders, including such as debt funds and mortgage REITs, followed closely with a 34 percent share in Q3 2024, reflecting a 27 percent increase from a year earlier. Debt funds notably saw a 70 percent surge in origination volume year-over-year among alternative lenders.
Banks accounted for 18 percent of non-agency loan closings in Q3 2024, down from their 38 percent share a year earlier. While banks are exercising caution due to concerns surrounding potential distress and regulatory pressures, there are positive signs in the sector, especially in syndicated loans backed by asset classes like industrial, multifamily, and data centers.
The CMBS conduits sector represented the remaining 5 percent of origination volume in Q3 2024, a 1 percent increase from a year earlier. Industry-wide CMBS issuance, including single-asset single-borrower CMBS loans, reached $29 billion in Q3 2024, tripling the amount from the previous year.
In Q3 2024, there were slight changes to underwriting criteria, with average underwritten cap rates and debt yields increasing by 20 bps quarter-over-quarter to 6 percent. Debt yields increased by 15 bps to 9.9 percent, while the average Loan-to-Value Ratio (LTV) ratio increased to 62.8 percent from 61.6 percent.
Government agency lending on multifamily assets saw a significant rise of 40 percent to $28 billion in Q3 2024. CBRE’s Agency Pricing Index, reflecting average fixed agency mortgage rates on 7–10-year permanent loans, term fell to 5.8 percent in Q3 2024 from 6 percent in the previous quarter, but up 5.7 percent from a year earlier.
“Our fastest growing segment occurred in the GSE space—up 80 percent in the third quarter compared to a year earlier—as a reduction in base rates generated higher achievable proceeds for borrowers relative to other capital sources,” said Millon.
