Commercial Mortgage Market Update

Residential lending may have slowed, but commercial lending is going strong. Commercial mortgage balances grew 8% last year versus 2012, according to lender CMLS Financial. Commercial origination was up roughly 18%.

If you want to follow the commercial lending market, two solid sources are CBRE Capital Markets and CMLS. Here’s the latest market update from each of them…

CBRE Analysis:

  • As lenders approach mid-year 2014, many are tightening their spreads in order to generate loans to meet allocations.
  • Commercial lenders are increasingly offering “creative structures, such as blended interest-only and amortizing loans.”
  • “Compared to 2013, there is far greater availability for long-term debt.”
  • The national average capitalization rate in Q1 was 6.19%, not far from the historical low.

CMLS Analysis:

  • “CMLS estimates the size of the Canadian mortgage market at approximately $185 billion and total commercial mortgage origination at $39 billion for 2013.”
  • “…Too much capital in the market proved to be a valid concern in 2013, helping credit spreads narrow by 20-35 bps year over year.” (That partly challenges the IMF‘s contention that government-backed residential funding is crowding out commercial investment.)
  • “An increasingly competitive landscape saw renewal rates fall in 2013, with pricing identified as the key but not [the] only reason for lost deals.”
  • In the CMHC-insured 5+ unit market, lending spreads for quality multi-family properties “are ~80bps (over Government of Canada bonds) for 5-year terms and ~90bps for 10-year terms.” (That implies base CMHC-insured lending rates of roughly 2.39%, remarkably low.)

Sidebar: Commercial financing is a market that more residential originators may wade into as spreads narrow on consumer lending. But it is not for the inexperienced. The language, lenders, pricing and underwriting process are all sufficiently different. If you’re a broker or lender rep looking to branch into this space, get an experienced mentor. Otherwise, you may find yourself learning the ropes at your client’s expense.


Rob McLister, CMT (email)

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