Today’s post is written by Michael Green, Senior Commercial Loan Originator with Counsel Mortgage Group, LLC. Mike writes monthly on the commercial mortgage market. Check back each month for his commentary.
“Patience; this is the greatest business asset. Wait for the right time to make your moves.”
J. Paul Getty
Timeless advice from Mr. Getty. But it begs the question: When is the right time?
Nobody buys at the bottom or sells at the top. No one rings a bell or sounds the siren to alert you that the time is now. So how do you know? Knowledgeable market pundits will tell you to watch the data … read the signs. Ahaaa! That’s it! So, let’s look at some data.
• Commercial real estate debt origination activity increased 42% year-over-year during Q1-25, maintaining strong momentum, though volumes remain well below pre-pandemic norms. (Frame of reference: “pre-pandemic” is now 5 years ago!) and, …
• in Q1-25, the CBRE Lending Momentum Index grew by 13% Q-over-Q and 90% Y-over-Y. Banks were 34% of the closings by non-agency lenders – (What do you suppose the other 66% were?). That was up from 22% in Q1-24, and …
• the Federal Reserve Bank of St. Louis has released a new analysis indicating that CRE lending by U.S. banks has been slowing and reached an 11-year low in the fourth quarter of 2024,
and …
• the number of active lenders remains meaningfully lower, but originations increased across all major asset classes, led by office, senior housing and hotels, according to Newmark’s Q1 25 State of the U.S. Capital Markets report.
• Continuing, stronger sales and refinancing activities are supported by a more favorable (lower) interest rate environment for CRE lending. However, uncertainty brought on by the tariff announcements threatens the debt markets’ momentum.
• Furthermore, debt funds and insurance companies also posted strong gains, while CMBS originations were relatively flat and securitizations have surged. Government agency lending continued its strong momentum.
• Banks continued to tighten lending standards during Q1, but the net share tightening came down significantly (rate decreased) from a peak of around 65%. This development is offered as a first step to a healthy CRE finance environment.
• Market estimates of about $2 trillion in debt matures between now and 2027. Thirty-seven percent of this maturing debt was originated when the federal funds rate was below 25 basis points (1/4%), compared with the current level of 4.25-4.50%. It’s estimated about $582 billion of this maturing debt could be “troubled”.
• Meanwhile, investment sales increased 18% year-over-year in the first quarter, but still 18% below 2017-2019 average levels. Office sales declined 16%, while multifamily was up 42%. Deals under $100 million made up 67% of volume traded in the past four quarters and institutional investment is up 66% year-to-date compared with 2024, with a 49% increase in office acquisitions. Institutional firms remain net sellers of office properties.
• Following the public markets (REITS), transaction cap rates have increased, but both private and public market cap rates appear unattractive relative to the cost of debt capital. This forecasts either a further rise in cap rates, or a decline in debt costs (interest rates).
So, here’s data – so much authoritative yet seemingly conflicted data. So much continuing market disrupting noise out of Washington. Uncertainty and risk in every direction. An observation offered by one of my favorite philosophers and proxy mentors may be helpful …
“In theory, there’s no difference between theory and practice. In practice there is.”
Yogi Berra
While pondering the right time, lack of activity doesn’t mean we’re idle. We continue to monitor markets and leading indicators for glimpses of clarity, early signs of direction, zeroing in on targets of opportunity. While many trends are negative, the rates of change are lessening … meaning things are getting “less bad”. The rate of change at turning points is more instructive than the rate itself. Key event nodes can now be identified and forecasted over the next few months. Do you have your targets? Your plans? Your strategies? Your financing?
Generational profit opportunities come along exactly that often … once in a generation. Are you ready? Call to compare notes during this generational period.