Q2 2021 Lender Segment Market Update
2021 is in full swing, and there has been no lack of excitement. The overall commercial real estate finance market is more liquid than it has been in the past year since the COVID-19 pandemic emerged. As the population in the US has increasingly become vaccinated, COVID-19 cases have continued to fall and the economy is reopening. It appears that the perceived risk in the lending market is disappearing, along with the pandemic. The following is our Q2 update:
As we have entered the second quarter of 2021, there is plenty of liquidity in the insurance company sector of the loan market. When extreme volatility hit the financial markets in March and April of 2020 as a result of the COVID-19 pandemic, most insurance companies tapped the breaks on commercial lending. Although most insurance companies started lending again after the financial market volatility subsided, they took a conservative approach to getting their money out for the balance of 2020. Most life insurance companies have planned to lend volumes in 2021 that are similar to or greater than their pre-pandemic numbers. Current pricing on typical 10-year insurance company debt averages between 2.50–4.00%.
For rates at the low end of the range, lenders are looking for lower leverage high-quality assets in infill locations. The market for bank loans is now highly liquid, as the processing of PPP loans has subsided. Construction and bridge bank loans are much harder to come by than loans on stabilized properties; however, both are still getting done. This market remains fluid but selective.
Freddie Mac and Fannie Mae have been lending throughout this COVID-19 pandemic and continue to do so. As government-sponsored entities, they have helped keep the multi-family finance markets exceptionally liquid during this time. Agency debt involves requiring principal and interest reserves, tax and insurance reserves, and replacement reserves for many loans. Agency debt is still quite competitive for higher leveraged loans in the 65-75% LTV range, but other sectors have recently been able to beat them out on most moderate and conservative loan requests. Interest rates in this sector are very aggressive and typically land in the 3.00%–3.75% range.
The CMBS market was stalled out for several weeks in March and April because the market to securitize loans was shut down in early March. Since that volatile period, conduit origination and issuance have gradually increased. Liquidity and larger than average profit margins for securitized loans are driving demand for new CMBS originations. According to a 4.9.2021 article in Commercial Mortgage Alert, “Commercial MBS issuance is on track to exceed last year’s volume, but continued fallout from the pandemic is expected to keep the pace of offerings tempered for the time being.” Current pricing for typical 10-year CMBS debt averages 2.75-40%.