CRE debt markets have continued to decline through the end of Q1 and this is a cause for concern. The signals are broadening, as lending to all asset classes has declined, nationally. Further concerning, an early preview of Q2 lending in NYC doesn’t add a sense of “summer fun”, as growth appears to be slowing in this weather-vane market. For a full understanding of Q1 debt market trends, download our Q1 CRE Finance report here.
Now, not all is doom and gloom. In fact, amidst this drop, there are several important bright spots. Certain geographies continue to grow or, at minimum, hold their own. Likewise, certain asset classes are stronger than others.
Further, amidst this market, some lenders are still competing to win, as indicated by shifting LTV levels, per region and per lender. At times, these LTVs can be downright aggressive, helping separate those that take on risks from those looking to shake it. CrediFi’s begun tracking LTVs per lender, region and asset class. There will be more to come on this soon.
For those considering entering the CRE Financing market, now may be a good time to take action – between these credit market dynamics and low interest rates.
Lending levels are, of course, not the only concern affecting CRE. In particular, new “rent regulation” in some states are likely to impact the market, especially the multifamily segment. The new regulation will impact multifamily in at least two ways. First, they will suppress revenue growth in affected buildings, thus affecting new loan underwriting. Second, they may retroactively hurt loans already originated, underwritten based on now-flawed assumptions.
Why does debt matter to the often buoyant world of real estate? CRE is a highly-levered asset class. This makes it dependent on debt markets. Any decline in these is a negative signal for CRE generally. Our study is, of course, adjusted for seasonality, as Q1 is typically a slower quarter than the prior Q4.
The one constant in life is change – including changes in these all-important debt markets. Navigating the shoals of change requires great information, to help make the right shifts. We at CrediFi have taken on the mission of providing transparency into these waters.