Commercial Real Estate Lending Climbs Above Pre-Pandemic Levels

Commercial real estate lending activity surged in the third quarter and is likely to rise through the end of the year, reflecting a healthy rebound of property investing that declined at the outset of the COVID-19 health crisis.

In fact, lending hasn’t been higher at any point since the turn of the century, according to data from the Mortgage Bankers Association.

Industrial, office, retail and multifamily mortgage loan originations were up 19% from the second quarter and 119% higher from a year ago. Third-quarter lending even surpassed fourth-quarter activity in 2019 prior to the pandemic. The fourth quarter is usually the highest quarter of activity in a calendar year.

“Among capital sources, nearly every major group — including [commercial mortgage-backed securities originators], banks, life companies and investor-driven lenders — is lending well above 2020 levels, with life companies and investor-driven lenders also exceeding their 2019 year-to-date volumes,” Jamie Woodwell, MBA’s vice president of commercial real estate research, said in a statement.

Loans also surged from alternative lenders, such as debt funds and mortgage real estate investment trusts, as borrowers seek financing for properties in need of upgrades or operational improvements, according to real estate firm CBRE.

“The number of new lenders entering the market or existing lenders expanding their programs is extraordinary,” Brian Stoffers, global president of debt and structured finance for capital markets at CBRE, said in a statement. “Capital chasing equity-like returns has found it more difficult to invest, and many have pivoted to high-yield debt strategies, such as real estate, that provide attractive risk-adjusted returns.”

To meet the increasing competition and demand, banks reported easier underwriting standards for all loan categories, according to the Federal Reserve Board’s latest Senior Loan Officer Opinion Survey on Bank Lending Practices released this month.

In the third quarter, a significant share of banks eased standards on multifamily loans, the survey said, while a modest number of banks eased standards on nonfarm nonresidential loans and construction and land development loans.

While the loosening of commercial real estate underwriting standards follows tightening in 2020 due to the pandemic, Moody’s Investors Service said this month that the trend will likely continue based on the strength of loan demand.

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