• Interest rates increased significantly following the November 8 presidential election. The yield on the benchmark 10-year U.S. Treasury increased from 1.88% on November 8 to 2.57% on December 20. More recently, the bond settled at 2.34% on April 11.
  • Overall cap rates rose slightly in Q1, as most underwriting measures were slightly more conservative. The average cap rate on closed loans tracked by CBRE Capital Markets increased to 6.22% in Q1, up 22 basis points (bps) from Q4.
  • Commercial mortgage market conditions remain favorable. However, there have been some changes in in pricing and availability by lender type. In particular, bank construction lending is the weakest segment.
  • Life companies remain active in the market with new 2017 lending allocations. Spreads have come down slightly in recent months and some lenders have eliminated interest rate floors.
  • Bank rates and spreads have not been materially affected by rising long-term rates, due to the floating rate nature of much of the banking business. Banks’ underwriting remains under pressure from regulators.
  • CMBS and agency lenders have been most affected by the interest rate increases, as they tend to grant loans at higher LTV ratios.
  • Mezzanine lenders remain active, providing gap equity on loan refinances.