Money Stopped Flowing in Commercial RE
Recession fears and rising interest rates created caution in the commercial market. Lenders pulled back and, so far, 2023 has seen the slowest growth since 2011.
NEW YORK – When the Federal Reserve started hiking interest rates in the first half of 2022 and concerns about a recession increased, banks, insurance companies and other commercial property lenders began pulling back on commercial real-estate lending.
With Treasury bond yields rising significantly since early August, creditors are even more hesitant to lend. Trepp reports that, so far this year, just $28.2 billion of loans converted into commercial mortgage-backed securities have been issued, marking a low not seen since 2011.
In the second quarter of 2023, the overall commercial property debt market, including banks, commercial mortgage securities and nonbank lenders, rose less than 1%, which Trepp’s Matthew Anderson says was the lowest increase since the first quarter of 2014.
Forced to refinance expiring loans at substantially higher rates, office owners have been hit hardest, but the change has had an impact across all commercial markets. Elevated interest rates have weakened investor interest in buying or developing property, and that has contributed to a decline in lending.
According to MSCI Real Assets, U.S. commercial property purchases totaled $89.2 billion in the third quarter of 2023, down 53% from the year-ago quarter.
Source: Wall Street Journal (10/31/23) Grant, Peter
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