Key Points
- Global lending activity among lenders as well as the overall competitiveness of lending terms reached a record high in April, according to JLL.
- The month was marked by strong demand for refinancing and significant loan placements.
- Data centers drive much of the business, as their massive construction fuels the real estate sector as well as the economy as a whole.
A version of this article first appeared in the CNBC Property Play newsletter with Diana Olick. Property Play covers new and evolving opportunities for the real estate investor, from individuals to venture capitalists, private equity funds, family offices, institutional investors and large public companies. Sign up to receive future editions, straight to your inbox. Commercial real estate is finally flush with liquidity, with record levels of lending activity. That’s the finding of a new credit index provided exclusively to CNBC’s Property Play by JLL, the global commercial real estate services and investment management company. JLL has been tracking the number of lenders offering and winning average loan-to-value rates, or LTVs, since 2019. Global lending activity among lenders as well as the overall competitiveness of lending terms reached a record high in April, driven by both strong refinancing demand and large loan placements, JLL found. There were a near-record number of separate lenders active in all sources of capital, from banks to private investors to family offices. As a result, LTV rates are increasing. In addition to the growing appetite of banks, there has been strong credit fund activity over the past five years, where investors in private funds, or LPs, have put money into credit vehicles. Government agencies have also been more active in multifamily real estate, and insurance companies are now expanding their exposure to real estate. “That’s because these groups can get a larger spread by investing in real estate rather than anything else,” said Lauro Ferroni, JLL’s head of capital markets research for the Americas. “It may be more lucrative for them. That’s No. 1. No. 2 is just they want to diversify their allocations across different tranches, especially in different economic cycles.” Data centers drive much of the business, as their massive construction fuels the real estate sector as well as the economy as a whole. This is largely due to artificial intelligence. “When it comes to other real estate sectors, it’s really their performance fundamentals that make them relatively attractive to both buyers and lenders,” Ferroni said. He pointed to the fact that real estate values have been rising since interest rates began rising in early 2022. Unlike the S&P 500, which is near its all-time highs, commercial real estate is at an attractive entry point, he said. In other words, there are good deals to be had. Refinancing is also the source of much of the credit’s appeal, according to JLL. Commercial property owners are not enthusiastic about selling their properties at lower values as their debt matures, so the demand for refinancing increases. There are those who, under financial pressure and not convinced that interest rates will fall and that values will increase, are content to sell their securities. In general, refinancing is increasingly favored. The sudden credit boom creates a greater divergence in competitiveness between credit markets and regular bidding activities for the sale of investments. The latter is still below 2021 levels, according to JLL’s quarterly Global Bid Intensity Index. Competition between buyers of CRE is increasing, but in a much less dynamic manner than that of credit. There was some seasonal slowdown early in the year, but investors are still attracted to the strong relative value and diversity of commercial real estate. And this despite the economic and geopolitical uncertainty in general caused by the war with Iran. There is still a gap between buyer and seller expectations, however, but the global bid-ask spread has narrowed significantly since the market bottomed in 2023. The JLL report notes that this sets the stage for a more predictable transaction environment in the second half of this year. There is also increasing differentiation between specific sectoral demands. “What has been remarkable over the past three months is the continued strengthening of tender fundamentals in the industrial and logistics sector. With the resumption of rental activity in these sectors, vacancy rates for particularly large warehouses have decreased significantly,” Ferroni said. At the same time, multifamily demand, measured by the competitiveness of offers, is weakening. This is due to recent oversupply that has kept rent growth even lower, despite a strong job market.