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Nine Takeaways from RCA’s February 2022 CRE Capital Trends Report

CRE capital markets performed well in 2021, with few signs of distress. But uncertainty remains.

In spite of 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 U.S. posted a very healthy performance, according a report from real estate data firm Real Capital Analytics (RCA). Overall lending volumes rebounded and loan terms, while tightened, remained largely accessible compared to recent years. There were some signs of loan distress, especially on office properties, but they have been rather muted so far.

That’s not to say the lending market is on a completely solid footing as the first quarter of 2022 winds down, RCA researchers warn. The past few months have brought a few 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 in almost 80 years, with the potential to undermine global economic recovery. Some planned CMBS issuances have already been pulled off the market as a result of such uncertainty, according to RCA data. But the overall picture remains strong. Here are the major takeaways from the report:

  1. Overall commercial real estate investment sales in February totaled 38.5 billion, a 34 percent increase compared to February 2020 and above the average volume for the same time period recorded between 2015 and 2019.
  2. The deals taking place during the month were not closing at large-scale discountsRCA’s Commercial Property Price Index (CPPI) during the month recorded a 19.4 percent increase year-over-year.
  3. However, during 2021 there was a shake-up in the most active lender groups in the U.S. commercial real estate market. Overall loan volume completed by investor-driven groups, which include debt funds, rose by 97 percent last year compared to the period between 2015 and 2019. Loan volume completed by CMBS lenders rose by 52 percent and by regional and local banks by 47 percent. On the other hand, loan volume completed by international banks fell by 6 percent compared to the years between 2015 and 2019, while national banks increased lending by just 2 percent.
  4. When it came to new originations, CMBS lenders and government agencies were responsible for 20 percent of the market in 2021 each, regional banks came in at 19 percent of all new originations, and investor-driven groups came in at 13 percent of the market.
  5. The average loan size in the U.S. commercial real estate market in 2021 totaled $15.7 million, down from $21.2 million in the period between 2015 and 2019. However, the average loan-to-value (LTV) ratio declined slightly, to 66.3 percent from 67.2 percent during the above-mentioned period. 
  6. Investor-driven groups, on the other hand, raised their average LTVs by 140 basis points, to 72 percent. Thirty nine percent of their loans in 2021 closed at LTV ratios of 75 percent or more.
  7. At the same time, investor-driven groups were the most active in lending on new construction projects last year, accounting for 24 percent of all construction loans, the highest level recorded since RCA started tracking the statistic seven years ago.
  8. Wells Fargo became the top originator for both conventional and construction loans in 2021, with JP Morgan coming in second on conventional loans and Bank OZK coming in second on construction loans. Godman Sachs was third in both categories.
  9. Commercial real estate lenders have still not seen loan defaults from the COVID-19 pandemic that would be comparable to those experienced during the Great Financial Crisis. In 2021, U.S. real estate reported an average value loss of 19 percent on their initial loan amounts. In 2010, that figure stood at 36 percent
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