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.
Since the beginning of the year (Trump’s inauguration), visibility into investment and finance markets has been overridden by political chaos. What we used to be fed as daily news and updates has been buried by the barrage of domestic and global events. We have had to go to some efforts, even extremes, to track the pulse of CRE activity and financing. What has been going on behind the daily headlines is, however, newsworthy.
CRE liquidity levels and lender diversity have reached new highs, even in the face of persistent macroeconomic uncertainty. According to the latest data from JLL, the number of debt quotes available to private capital investors has soared 74% since the market bottomed out in the fourth quarter of 2023. This surge is not just a sign of a market rebound; it also reflects a more balanced and competitive lending environment, as banks, insurance companies and other capital sources ramp up their activity across a range of property types. CRE financing is stabilizing on a yet unstable platform of performance data.
We wrote previously about the 10-year Treasury being a better indicator of CRE financing than the fed funds rate. The easing of debt pricing has played a crucial role in this renewed momentum. After peaking at 5% for the 10-year Treasury yield (and 5.4% for SOFR rates) in late 2023 and mid-2024, both benchmarks have since fallen significantly – the 10-year by about 60 bps. This drop has made borrowing more attractive and accessible, fueling an uptick in lending activity.
Per a JLL spokesperson, the current environment is especially favorable for private investors seeking loans under $25 million, a segment that serves as a proxy for the broader health of the market.
Banks in particular are defying the narrative of retrenchment that dominated headlines in 2023 and early 2024. While overall bank lending did slow during that period, activity has rebounded sharply since Q3-24. This turnaround is partly due to increased loan payoffs and a temporary reprieve from stricter reserve requirements under the Basel Endgame framework, which has freed up more capital for CRE lending.
In fact, the number of banks quoting on loans over $100 million has jumped from 110 in the second half of 2023 to 172 over the past six months, signaling renewed confidence even at the upper end of the market.
A notable trend shaping the lending landscape is the shift toward shorter loan durations. Since 2021, about 74% of commercial real estate lending volume has consisted of loans with terms of 5 years or less, up from 55% in the preceding 6 years. This reflects borrowers’ preference for flexibility amid fluctuating interest rates and the expectation of future refinancing opportunities. This shortens the risk horizon for decision making, and pre-positions more refinancing activity going forward.
JLL’s latest data also reveals a significant resurgence in lending activity for larger CRE loans, underscoring the depth and breadth of current market liquidity. Over the past 6 months, 172 different banks have quoted on loans exceeding $100 million, a dramatic increase from just 110 banks active in this space during H2-23. This jump is particularly noteworthy because it signals not only a return of confidence among major lenders but also a broadening of participation across the banking sector.
While much of the visible data focuses on large banks, those affected by the Basel Accords, these also reflect an increasing return to CRE lending by middle and entry-level market lenders. Considering that some members of the regional banking market are cautiously holding bond investments marked for holding to maturity with paper losses, continuing economic data, particularly regarding labor statistics, increasingly suggests the fed’s next move will be to lower rates, possibly by Sept. If this comes to pass, it will reduce the risk of these bond holdings, and aid to re-invigorate the regional banking sector. Regional and community banks are primary lenders to the $1-25 million CRE mortgage market.
BTW, the June SBA 504 debenture rate came in at 6.37% … fixed for 25 yrs. Still more than a point below Prime. (Call for pre-payment schedule and other details.)0