Q4 2021 Lender Segment Market Update
2021 is almost over, and there has been no lack of excitement. The overall commercial real estate finance market is more liquid than it has been in the past decade. The population in the US has increasingly become vaccinated and most of the United States has found a new normal with the economy reopened. The following is our Q4 update:
As we have entered the fourth quarter of 2021, the insurance company sector of the market is quite liquid. 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 again after the financial market volatility subsided, they took a conservative approach to getting their money out for the balance of 2020. 2021 has been a different story. Most insurance company lenders have exceeded their pre-pandemic production of 2019 and are planning increased allocations in 2022. Current pricing for typical 10-year insurance company debt averages between 2.75-3.50%.
For rates at the low end of the range, lenders are looking for lower leverage high-quality assets in infill locations. Construction and bridge bank loans are readily available under competitive terms. One takeaway we have seen over the past years with many banks is the willingness to modify or do simple rate reduction or term extensions to accommodate and retain clients. This is a function of the high level of liquidity in the market.
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. Most agency loans no longer require the principal and interest reserves that were implemented at the beginning of the pandemic. Agency debt is still quite competitive for higher leveraged loans in the 65-75% LTV range, but other sectors have recently been able to beat them out on most moderate and conservative loan requests. Lending limits across the agency platforms have been increased recently and we expect continued strength from the group through the end of 2022. Interest rates in this sector are very aggressive and typically land in the 2.75–3.50% 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 gradually increased. Liquidity and larger-than-average profit margins for securitized loans are driving demand for new CMBS originations. Current pricing for typical 10-year CMBS debt averages 2.75-4.00%.