According to the industry group Mortgage Bankers Association (MBA), commercial real estate (CRE) lending has made significant gains recently thanks to an improving economy and increased demand for loans. Increased loan activity is exactly what the Federal Reserve hoped would happen when it lowered its benchmark federal funds rate to its current near zero level nearly six years ago. This strategy appears to have worked as intended, as loan activity picked up and the nation’s economy improved as well.
According to the MBA, low interest rates and strong fundamentals in the commercial real estate space are fueling the availability of additional mortgage debt this year. Loan activity is also being helped by rising property values and by the actions of some state and local agencies that are implemented policies encouraging additional CRE lending. Lastly, lower default rates increased the profitability of these loans, and lenders are taking notice of this and are issuing more loans because of it. The increase in loan activity is evident in various figures released by the MBA in its report on commercial real estate and multi-family lending. For example, the amount of outstanding commercial and multi-family debt in the industry increased by roughly $25 billion from the first quarter of 2014 to the second quarter of the year when it ended at $2.56 trillion. The rate of growth also increased from the first quarter to the second quarter by one-percent.
Mew loans are coming from a variety of different sources and are occurring at a broad range of levels. For example, the largest increase in commercial and multi-family mortgage debt in terms of dollar took place among banks and thrifts, but life insurance companies and real estate investment trusts also increased their debt holdings. Indeed, the only type of lenders that made fewer loans during the period covered by the report were securitized lenders who raise capital by issuing asset backed securities like collateralized debt obligations and commercial mortgage backed securities. The outstanding commercial/multi-family mortgage debt for these lenders fell by 0.4 percent, or roughly $2.3 billion.
As the fourth quarter gets underway, concerns over an economic slowdown in Europe, the Ebola virus, and continuing turmoil in the Middle East and Ukraine have rattled some capital markets in various parts of the world. However, these events do not seem to have affected the outlook for commercial real estate loans in the United States, which continues to remain very positive. Accordingly, while interest rates remain low, parties who are interested in obtaining capital for senior housing real estate transactions should contact the Chicago-based financing firm Cambridge Realty Capital to learn more about the many different financing options that it offers for these types of transactions.