US banks gain additional 8% of commercial loan market share: CBRE

US commercial lending volume continues to increase as banks regain their share of the debt markets, according to a new report from CBRE. Banks accounted for 36% of commercial originations during Q2 2014, gaining 8% of additional market share since last year. That was accompanied by a more than 10% surge in loan closings (by dollar volume) […]

US commercial lending volume continues to increase as banks regain their share of the debt markets, according to a new report from CBRE.

Banks accounted for 36% of commercial originations during Q2 2014, gaining 8% of additional market share since last year. That was accompanied by a more than 10% surge in loan closings (by dollar volume) during the same period.

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Lender composition in Q2 (click to expand)

The re-emergence of banks as primary lenders is due in part to lower commercial loan delinquency rates, higher levels of liquidity and loosening credit standards. As the banks pulled ahead, life companies and CMBS issuers’ market share has declined (chart 1).

“Banks have been increasingly competitive with life companies and [CMBS issuers] by offering a range of short-term and permanent financing options,” CBRE said in its September US Lender Forum report.

“In addition to offering short-term bridge financing, banks have also been offering longer-term fixed-rate financing.”

Banks have also capitalized on increased appetite for competitive floating rate loans priced off the Libor benchmark, CBRE said. More than 80% of loans closed by banks in Q2 2014 were floating rate, with mostly three- to five-year terms averaging 62% loan-to-value ratios and a 240 basis point spread.

Delinquency rates on bank’s non-farm, non-residential loan portfolios fell to 1.6% in Q1 from a peak of 4.4% in 2010, according to FDIC data.

CBRE’s “Lending Momentum Index,” which tracks the dollar volume changes in loan closings over time, showed an overall 10.1% year-over-year increase in Q2, thanks in large part to increases in commercial property investment sales activity.

Data from Real Capital Analytics showed that the sales of “significant commercial properties” increased 24% year-over-year to $93.3bn in Q2 2013, with acquisition financing accounting for half of all loans closed during the quarter.

Office and industrial lending volume were both up by more than 50% year-to-date over the same period a year ago, while retail volume was up by more than 20%. Multifamily however remained relatively flat after experiencing a boom during the recession.

Brian Stoffers, president of debt & structured finance at CBRE, said in a written statement that the relative increase in lending on office and industrial properties is a “sign that the lending recovery has materially broadened beyond the multifamily sector, as improving leasing fundamentals are boosting confidence.”

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Historical LTV data (click to expand)

Despite the overall surge in volume, underwriting standards have “held up well,” with the average loan-to-value for permanent, fixed-rate commercial loans edging up from 62.8% in Q1 to 64.2% this quarter – only slightly higher than the eight-quarter average. Meanwhile, average LTVs on multifamily loans decreased to 67.7% from 68.3% in Q1 2014 (chart 2).

Average debt service coverage ratios on permanent loans crept up to 1.53x from a 1.45x average in Q1 2014. After a sharp jump to 57% in Q1 2014, the share of loans carrying partial or full interest-only terms fell to 45.6%. That number had surpassed 60% during the height of the credit boom in 2007.

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