Lending Market Shows Signs of Stabilization

The CRE lending market showed promising signs of stabilization in the final quarter of 2023,

Lending Market Shows Signs of Stabilization

The CRE lending market showed promising signs of stabilization in the final quarter of 2023,

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Good morning. The CRE lending market showed promising signs of stabilization in the final quarter of 2023. However, while banks are leading the lending uptick, bad CRE loans are starting to exceed reserves.

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Lending Market Shows Signs of Stabilization

The commercial real estate lending market showed promising signs of stabilization in the final quarter of 2023, as exhibited by the latest CBRE research.

Slight uptick: The CBRE Lending Momentum Index, a key measure of U.S. commercial loan closings, experienced a 1.0% increase in Q4 2023 compared to Q3 2023. This growth is notable as it marks the first quarterly increase since early 2022, despite a 38.1% year-over-year decline. The index value stood at 189 by the close of Q4.

  • Banks remained the largest contributors to CBRE's non-agency loan closings for the seventh consecutive quarter, making up 39.5% of the total in Q3 2023, a slight increase from the previous quarter. About a third of the Q4 loan volume comprised floating-rate loans, with a focus on refinancings and property acquisitions.

  • Alternative lenders, like debt funds and mortgage REITs, saw increased loan volume participation, rising to 30% in Q4 from 27.4% in Q3 2023. Multifamily assets continued to be the preferred property type for these lenders.

  • Life insurance companies contributed to 27.4% of origination volume in Q4, predominantly in fixed-rate loans for industrial and retail assets, marking a decrease from the previous quarter.

  • CMBS conduits represented less than 3% of the non-agency loan volume, though there was an improvement in Q4 2023. The year’s total CMBS volume declined by 44% compared to 2022.

Underwriting criteria: The average underwritten cap rate increased by 16 basis points to 5.68%, and the loan-to-value ratio rose to 61.4%. Higher interest rates led to loan constants averaging 6.72% in Q4, up from the previous year.


What they are saying: James Millon, U.S. President of Debt & Structured Finance at CBRE, highlighted that despite ongoing market challenges, more favorable lending conditions are emerging, especially in specific asset classes. Contributing factors include declining credit spreads, a narrowed trading range for benchmarks, and higher cap rates reset.


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  • Industrial evolution ahead: A report by Newmark and NAIOP predicts a 6–13% increase in manufacturing space nationwide, focusing on advanced manufacturing over warehousing.

  • Construction conundrum: With 49MSF of planned industrial construction, Dallas-Fort Worth still leads the nation despite Phoenix's 42.5MSF.

  • Fundraising frenzy: Elion Partners raised $400M for its U.S. industrial real estate fund, targeting $750M with a $1B hard cap. Multiple commitments have already been reported.


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  • Tech vacancies: In 3Q23, tech markets saw a 30 bps rise in vacancies across traditional, emerging, and national areas.

  • Frozen tower: Vornado (VNO) halted its 18MSF Penn Station office tower project due to frozen capital markets last January.


Bad Property Debt Now Exceeds Reserves at Largest US Banks

Bad property debt exceeds reserves at largest US banks

Shares of regional lender NYCB plunged after it reported potential losses in its commercial property loan book © Bing Guan/Bloomberg

The largest U.S. banks are facing the music as bad CRE loans officially surpassed reserve levels, raising alarms about the impact of delinquent debt on the banking sector.

Reserve erosion: Average reserves at top U.S. banks plummeted from $1.60 to just 90 cents for every dollar of CRE debt where borrowers are at least 30 days late. This sharp decline comes as delinquent CRE debt tripled to $9.3B over the past year. The overall value of delinquent loans across the U.S. banking sector tied to CRE has more than doubled to $24.3B, intensifying concerns.

Rising defaults: Delinquencies on loans related to offices, malls, and apartments surged, with banks now holding $1.40 in reserves for every dollar of delinquent CRE loans, down from $2.20 a year ago. This is the lowest cover banks have had in absorbing potential CRE loan losses in over seven years.

Revising strategies: Banks traditionally set reserves based on historical loss rates for different categories, with CRE typically having lower default rates. But after COVID, relying solely on historical data might not make sense this time around. Some experts suggest banks should adopt a more forward-looking approach, basing reserves on current delinquency levels to better prepare for potential future losses. 


Troubling data: Despite assurances from bank executives about preparedness, recent data reflects a worrying rise in delinquencies on loans tied to CRE. With estimates suggesting potential losses could reach $60B over the next five years, banks may need to reevaluate their reserve strategies to ensure sufficient buffers against unforeseen challenges.


In 2023, apartment sales saw a 61% decline in overall volume. Despite the challenging financial landscape, six luxury apartment complexes changed hands for over $200M each last year.


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