Heading into the second half of the year, investors say lenders are so confident in the rebound of the economy they are even willing to finance deals involving the hard-hit hotel industry!
It’s a sign that deal flow is back as lenders are again competing to provide money for the property sector that suffered the most during the pandemic as travel, tourism, and convention business ground to a halt. And now the movement is beginning to show up in statistics for all property types.
The amount of loans on the commercial mortgage-backed securities market packaged into pooled bond offerings and sold publicly on Wall Street has picked up this year through May. (Source: CoStar Risk Analytics) Even with only two months of Q2 data available, loan origination volume in that time already surpassed Q1 totals across all major property types, except retail.
And in that sector, loan originations in the first two months of the Q2 were just $30 million shy of the Q1 and show signs of continuing to grow with one more month of data still to be reported.
CMBS loan origination data in multi-borrower, multi-lender securitizations is collected and reported monthly by Co-Star, providing the most transparent look available at what properties are getting financed and on what terms. Q2 loans are up well over the Q1. Yet they are still not near the totals for the Q2-19 except for office, where volume has already eclipsed that period two years ago prior to the pandemic, $9.5 billion versus $7.1 billion.
“We’re seeing lots of activity. We’re seeing that all the banks are flushed with money. CMBS is very active for what they do in the market. And life insurance companies have plenty of money. So, there is no shortage of capital really for all property types and we’re even seeing hotels getting lent to at more traditional rates.”
Paul Ahmed, Sr. V.P. CBRE Capital Markets’ debt and structured finance team, per CoStar News.
Financing available for hotel deals is reflected in preliminary Q2 U.S. transactions tracked by CoStar. The total sales figure of more than $12 billion is up three times over Q1. That is the highest Q2 volume in five years.
Are lenders flying in the face of danger? Risks loom on the horizon: inflation, supply chain shortage continuance disrupting the economic recovery, COVID delta variant triggering another economic shut-down. What lenders and markets seem assured of is the Fed’s support of the economy … holding the line on low rates (Fed Funds 0-1/4%), continuing asset purchases of $120b/mo. The underlying belief seems to be if liquidity continues to be available and essentially free, lenders will continue to lend.
So, in this helter-skelter environment why do you need a mortgage broker? Precisely because it is a helter-skelter environment.