With so much having changed now in the commercial real estate market since March, let’s take a look at how all of this has now impacted our financing market. As would be expected, lenders have become more cautious in granting loans, and the retail and hospitality properties have been leading the pack with loan delinquencies, too. In addition, these kinds of properties represent the ones that the lenders are the most cautious about lending on also.
As we approached the end of the second quarter of this year, we experienced a slowdown in the number of overall loan applications, as people were coming to terms with trying to understand just what the total, overall impact of the pandemic would mean to commercial real estate, and people were cautious about initiating new commercial real estate transactions, too.
Keeping this in mind, according to industry media source GlobeSt.com, commercial real estate loan closings were down 21% in the second quarter of this year, when compared with in the second quarter of 2019. In addition, the delinquency rate on commercial mortgage-backed securities loans (CMBS) increased to approximately 6.4% in June, which was up from just 1.2% in March. However, also measured in June, these delinquencies reached 22% within the hotel sector, and 17% for other retail properties.
Overall, it’s been the commercial banks that have risen up to fund approximately 70% of the loans on commercial properties that were closed in the second quarter, which is more than double the percentage of loans in the marketplace that they would normally be closing. In addition, the life insurance companies were responsible for funding approximately 23% of loan originations, which was a slight decrease from the percentage of loans that they funded during the second quarter of 2019. In addition to this, these life insurance loans tended to be secured with a loan-to-value ratio of 60% or less on commercial properties.
CMBS loans saw the biggest overall reduction in new loan activity, and they’re now at their slowest level since 2016.
In putting all of this together in looking to the future, lenders are expected to remain cautious and conservative when granting new loans. The apartment sector has been the one that lenders have been the most comfortable in granting new loans within, followed by industrial, but the lenders will definitely be keeping a cautious eye on the economic horizon when granting new loans in the future.
