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Q1 2021 Lender Segment Market Update

January 28, 2021

2020 was full of events that greatly impacted the commercial real estate lending market and we anticipate that 2021 will not deviate from that trend. Slatt Capital will continue issuing quarterly market updates to keep our clients well informed, the following is our Q1 update.

Insurance Companies
As we have entered the first quarter of 2021, there is plenty of liquidity in the insurance company sector of the loan market. When extreme volatility hit the financial markets in March and April of 2020 as a result of the COVID-19 pandemic, most insurance companies tapped the breaks on commercial lending. Although most insurance companies started lending after the financial market volatility subsided, they accumulated uninvested cash with which they are now looking to allocate. Current pricing on typical 10-year insurance company debt averages between 2.50–4.00%.

Banks/Credit Unions
For rates at the low end of the range, lenders are looking for lower leverage high-quality assets in infill locations. Most banks are still actively lending, although they are using much more conservative underwriting requirements, and many are focused on processing PPP requests. Construction and bridge bank loans are much harder to come by than loans on stabilized properties; however, both are still getting done. This market remains fluid but selective. The market for bank and credit union financing is quite liquid overall.

Freddie Mac and Fannie Mae have been lending throughout this COVID-19 pandemic and continue to do so. As government-sponsored entities, they have helped keep the multi-family finance markets exceptionally liquid during this time. Agency debt involves requiring principal and interest reserves, tax and insurance reserves, and replacement reserves for many loans. Interest rates in this sector are very aggressive and typically land in the 2.50%–3.50% range.

The CMBS market was stalled out for several weeks in March and April because the market to securitize loans was shut down in early March. Since that volatile period, conduit origination and issuance has gradually increased. Liquidity and larger than average profit margins for securitized loans are driving demand for new CMBS originations. According to a 1.22.21 article in Commercial Mortgage Alert, “After blowing out in the early weeks of the outbreak, bench-mark spreads on conduit paper rebounded, driven by pent-up demand for fresh paper. They’re currently as tight as they’ve been since the previous financial crisis.” Current pricing for typical 10-year fixed CMBS debt averages 2.50-3.50%.