With Lending Back, Capital Markets Confidence Rises for Second Half of 2021 Article originally posted on CoStar on July 12, 2021 Growing CMBS Debt Available Will Fuel Deals Across Property Types, Brokers Say Wall Street’s securitizations of Investment mortgages in the second quarter show property financings increasing. Heading into the second half of the year, investors say lenders are so confident in the rebound of the economy they are even willing to finance deals involving the hard-hit hotel industry. It’s a sign that deal flow is back as lenders are again competing to provide money for the property sector that suffered the most during the pandemic as travel, weddings and convention business ground to a halt. And now the movement is beginning to show up in statistics for all property types. The amount of loans on the Investment mortgage-backed securities market packaged into pooled bond offerings and sold publicly on Wall Street has picked up this year through May, according to CoStar Risk Analytics data provided by Intex Solutions. Even with only two months of second-quarter data available, loan origination volume in that time already surpassed first-quarter totals across all major property types except retail. And in that sector, loan originations in the first two months of the second quarter were just $30 million shy of the first quarter and show signs of continuing to grow with one more month of data still to be reported. CMBS loan origination data in multiborrower, multilender securitizations is collected and reported monthly, providing the most transparent look available at what properties are getting financed and on what terms. Second-quarter loans are up well over the first quarter. Yet they are still not near the totals for the second quarter of 2019 except for office, where volume has already eclipsed that period two years ago prior to the pandemic, $9.5 billion versus $7.1 billion. “We’re seeing lots of activity. We’re seeing all the banks are flushed with money. CMBS is very active for what they do in the market. The life insurance companies have plenty of money. So, there is no shortage of capital really for all property types and we’re even seeing hotels getting lent on at more traditional rates,” Paul Ahmed, senior vice president for CBRE Capital Markets’ debt and structured finance team, told CoStar News. Financing available for hotel deals is reflected in preliminary second-quarter U.S. transactions tracked by CoStar. The total sales figure of more than $12 billion is up three times over the first quarter. That is the highest second-quarter volume in five years. “To be honest, I thought that market would take at least a couple of years for lenders to fully come back into that space, but that’s actually coming back quicker than expected,” said Ahmed, who’s based in Fort Lauderdale, Florida. The market for deals in all property types is expected to open further in the second half of the year, according to Investment real estate brokers contacted by CoStar. “You are seeing 2.5 years of pent-up normal seller [offerings] pulled back like a rubber band so tight that it has to snap,” Shaun Riney, a New York investment broker for Marcus & Millichap division Institutional Property Advisors, said in an email. Multifamily rent restriction laws in New York and cities on the West Coast in 2019 kept some sellers out of the market, according to Riney. Then COVID-19 hit, and deal volume plummeted. This year, though, saw a new White House administration intent on raising capital gains taxes and trying to end so-called 1031 property exchanges, a popular tax break with real estate investors. Those factors alone are bringing sellers to the market, brokers said. “Transaction activity has picked up to a level where there is now much better clarity on values. What is interesting is that this escalation in activity is largely being driven by a whole new universe of buyers,” said George Good, an executive vice president at brokerage CBRE in suburban Chicago. “Many of these private investment groups and funds are new. Some existed pre-pandemic but have been able to access new sources of equity capital. Both are using attractive debt to acquire real estate assets that offer a promise of better returns and better security than alternative investment options.” There is a risk, Good added, that changes to the tax code could derail this influx of private investor money. But for now it is driving transaction activity. J. Ryan Lang, a vice chairman overseeing multifamily capital markets for the brokerage Newmark in Austin, Texas, said, “We continue to see increased transaction activity and expect [the fourth quarter] could be one of the busiest quarters for sale volume in several years.” He added that “our student housing platform has closed 23 deals totaling almost $1 billion in activity year-to-date, and our industry appears to be a net beneficiary of pent-up demand from reduced activity in 2020, overly competitive yields in competing asset classes, and increased availability of accretive debt financing options.”