RCA Insights

Which US Lender Groups Are Gaining Ground?

By on September 20th, 2018

The commercial real estate debt markets in the U.S. are now as competitive as ever. Six out of the eight classes of lenders tracked by RCA captured at least a 10% share of the lending market for the first half of 2018. Despite the upward move of the long end of the yield curve over the last year and a half, commercial mortgage rates have not increased as much, in part because of this competition.

However, there are lenders taking on risks to hit higher yield requirements in this competitive environment. Two weeks ago, we noted that financial companies and debt funds were taking on more risks in the form of high-LTV loans. For existing, stabilized properties, we found that 20% of their loans were originated at LTVs of 80% or higher. For all other lender groups, by contrast, this 80%-and-higher range represented only 11% of their originations.

Financial companies and debt funds have been gaining ground for loans tied to some of the riskier equity investment strategies. For loans on value-add properties and especially for construction loans, these lenders have gained market share since 2015.

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In a competitive lending market with upward pressure on the long end of the yield curve it can become impossible for lenders to compete on price. Gaining market share by loosening standards and taking on risks that other lenders may not is another avenue to pursue. How long this loosening could continue before becoming destabilizing to the broader market is an open question.

In respect to moves being undertaken by equity investors, there are two classes of investors which have expanded their exposure to commercial real estate in the first half of 2018 by buying more assets than they sold. These two classes are the institutional/fund managers and cross-border investors. REITs, private buyers and users were all net sellers in the first half of 2018.

On September 26  Real Capital Analytics will publish the new issue of US Capital Trends. This edition reports on trends in debt and equity flows for H1’18, as well as transaction activity and pricing in August. 

Jim Costello

Jim Costello

Senior Vice President

Jim Costello has worked in the CRE space on issues of urban economics since 1990, including a 20-year stint at Torto Wheaton Research. Jim expanded the reach of the Torto Wheaton Research team developing forecasts of global market fundamentals. He also developed approaches to pair the forecast results with frameworks to answer investor questions on asset values and relative investment opportunities.

In the aftermath of the Global Financial Crisis, Jim provided advice to the Treasury Department and helped educate these professionals on commercial real estate performance. Jim is a member of the Commercial Board of Governors of the Mortgage Bankers Administration, where he helps policy makers understand the commercial real estate industry.

Jim is expanding the capabilities of the Real Capital Analytics team on issues of real estate market dynamics. Jim has a master’s degree in economics and is a member of the Counselors of Real Estate.