Situs RERC Finds Commercial Lending Trends Mixed

Situs RERC, one of the longest-running and most well-recognized national research firms, has been monitoring real estate transactions for over 80 years. In preparing its next report, Situs RERC found lending spreads have contracted some in 2017, as interest rates rose from late 2016; however, the lending environment generally remains competitive. Debt is more available in markets viewed as robust than in markets with less liquidity and safety.

Based on data provided by Real Capital Analytics (RCA), Situs RERC finds:

  • Solid CRE fundamentals have resulted in historically low CRE and apartment mortgage rates, despite mortgage rates being either flat or having slight increases over the last year.
  • The apartment sector has led the recovery, but many lenders overindulged on multifamily loans and are concerned about their exposure to the market. As millennials have aged and begun to start families, homeownership rates have started to rise, which may lead apartment lenders to be more cautious. Lenders are watching to see if new supply in the apartment sector will lead to rising vacancies and the need to offer concessions.
  • Availability due to new, stricter regulations on banks and insurers has caused them to lend to predominately primary markets at lower LTVs.
  • Banks pulling back from lending at higher LTVs and in secondary markets has opened up the door for alternative lenders to lend to borrowers who are unable to secure financing from banks.

“A combination of increased regulation and caution in the market, with some wondering if we are at the height of the real estate cycle, is causing lenders to be more cautious and tighten their credit standards,” says Jared Klimowski, Assistant Vice President at Situs RERC.

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