Nine takeaways from RCA’s February 2022 CRE Capital Trends report

Despite various market challenges in 2021, including consecutive new waves of the COVID-19 pandemic and rapidly rising inflation, the commercial real estate lending sector in the United States has performed very well, according to a report from real estate data company Real Capital Analytics (RCA). Overall lending volumes rebounded and lending terms, although tighter, remained broadly accessible compared to recent years. There have been some signs of lending distress, particularly on office properties, but they have been rather muted so far.

That’s not to say the lending market is on completely solid footing as the first quarter of 2022 draws to a close, RCA researchers warn. The last few months have brought some unpleasant surprises, including the massive wave of COVID-19 infections with the Omicron variant and the start of the war in Ukraine, the first major military conflict in Europe for nearly 80 years, with the potential to undermine global economic recovery. Some planned CMBS shows have already been pulled from the market due to such uncertainty, according to RCA data. But the overall picture remains solid. Here are the key takeaways from the report:

  1. Global business real estate investment sales in February totaled 38.5 billion, an increase of 34% compared to February 2020 and higher than the average volume for the same period recorded between 2015 and 2019.
  2. Transactions that took place during the month did not close with large scale discounts –RCA’s Commercial Property Price Index (CPPI) for the month recorded a 19.4% increase Year after year.
  3. However, in 2021 there has been a shift in the most active lender groups in the US commercial real estate market. GenerallyThe volume of loans made by investor-focused groups, which include debt funds, increased by 97% last year compared to the period between 2015 and 2019. Volume of loans made by CMBS lenders increased by 52% and by regional and local banks by 47%. On the other hand, the volume of loans granted by international banks fell by 6% compared to the years between 2015 and 2019, while national banks only increased their lending by 2%.
  4. When it comes to new originations, CMBS lenders accounted for 20% of the market in 2021regional banks came in second, with 19% of all new start-ups, and investor-focused groups came in third, with 13% of the market.
  5. the average loan size in the U.S. commercial real estate market in 2021 totaled $15.7 million, up from $21.2 million previously in the period between 2015 and 2019. However, the the average loan-to-value (LTV) ratio decreased slightly from 67.2% to 66.3% during the aforementioned period. The decline in average LTV was largely due to competition from loans from government agencies.
  6. Investor-focused groups, on the other hand, increased their average LTV by 140 basis points, at 72 percent. Thirty-nine percent of their loans in 2021 closed at LTV ratios of 75 percent or higher.
  7. At the same time, investor-focused groups were most active in lending to new construction projects last year, accounting for 24% of all construction loansthe highest level recorded since RCA began tracking the statistic seven years ago.
  8. Wells Fargo became the top originator of conventional loans and construction loans in 2021, with JP Morgan in second place for conventional loans and Bank OZK in second place for construction loans. Godman Sachs finished third in both categories.
  9. Commercial real estate lenders have yet to see defaults from the COVID-19 pandemic that would be comparable to those experienced during the Great Financial Crisis. In 2021, US real estate recorded an average loss of value of 19% on the amount of its initial loans. In 2010, this figure was 36%. Loans on office properties have affected values ​​the most in 2021.

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