Q3 2022 Lender Segment Market Update
As we are wrapping up Q3, volatility continues to reign in 2022. Market instability continues to be driven by high inflation, the war between Russia and Ukraine, and the Federal Reserve pushing up interest rates to mitigate inflation. Many people fear that the Fed is going too far and may push the economy into a deep recession rather than the soft landing they are targeting.
With all of this in mind, the following is Slatt Capital’s Q3 2022 update:
The insurance company segment of the commercial real estate market is still liquid. Most insurance companies compare yields in their bond investments to those of their commercial real estate loans. With volatility continuing in the corporate bond market, spreads have held high. The average 10-year fixed-rate loan for insurance company lenders is 5.25-6.25%.
The bank/credit union sector space is still liquid; however, they have been more cautious on certain transactions than in Q1 and Q2 of 2022. Most banks have moved away from making fixed-rate loans longer than seven years and are more focused on short-term financings. Banks are becoming more conservative in the construction and bridge space as the Feds navigate this rising rate environment.
Freddie Mac and Fannie Mae have continued to lend through the current market volatility. Agency debt is still quite competitive for leveraged loans in the 65-75% loan-to-value (LTV) range. The agencies have also recently sharpened their pencils to tighten spreads for lower leveraged transactions. Agency lenders are still most aggressive when quoting loans on properties that have an affordable component. Typical 10-year fixed-rate for agency loans are in the 5.25-5.75% range.
High volatility in the financial markets has created a risky environment for securitized lenders to price transactions, leading to a slowdown in CMBS originations year-to-date. Typical 10-year fixed-rate CMBS loans are in the 5.75-6.50% range. Full-term interest-only loans are still prevalent.
Debt funds have become an active part of the bridge loan market over the last decade. Many debt funds that offer floating rate loans have seen rates substantially spike. This vehicle remains active thus far in the cycle.