Commercial Real Estate Financing Volume Likely to Rebound in 2024

But different types of lenders will see different arcs to their upswings.


The sun peeked out from the clouds in mid-December for commercial real estate lending after a mostly gloomy year.

In a 2023 largely defined by uncertainty over how high the Federal Reserve would raise interest rates, the commercial real estate market got a boost when the central bank indicated Dec. 13 that its hawkish strategy fighting inflation was likely done, and that multiple rate cuts were on the table for 2024. 

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The Fed brought short-term interest rates to their highest level in 22 years at between 5.25 percent and 5.5 percent. It’s now forecasting to close 2024 with rates at 4.6 percent followed by 3.6 percent in late 2025 and 2.9 percent by the end of 2026, based on current economic conditions.

The Fed hiked rates 11 times from March 2022 to July 2023. The pause, then, and the expectation of declines was welcome news for commercial real estate lenders and borrowers.

Some signs of improving lending conditions were already showing in the commercial mortgage-backed securities (CMBS) market prior to the Fed’s final meeting of the year due to drops in 10-year U.S. Treasury yields, which would fall to 3.91 percent on Dec. 15 from 4.37 percent in late November.

Steven Caldwell, head of large loan originations at Barclays (BCS), said last month marked the lender’s busiest December for conduit loans in four years, with much of the volume driven by borrowers who wanted to capitalize on an improved interest rate environment for deals they had originally looked to bring to market earlier in the middle of 2023. Caldwell said the Fed’s Dec. 13 announcement only amplified improved lending conditions that he saw leading up to the meeting, and it bode well for origination volume kick-starting earlier than previously expected next year. 

“I definitely think it’s moving the calendar forward,” Caldwell said. “A lot of the back-ended optimism we saw was driven by expectations that rates would ultimately come down.”

Caldwell noted that, in addition to the prospect of lower interest rates, the CMBS market is also getting a boost from “gridlock” that is now getting pushed through as borrowers are opting for conduit loans to create needed liquidity for projects. Barlays has been pricing 15 to 20 percent of office loans in every pool, according to Caldwell, typically utilizing a five-year, fixed-rate structure. 

Barclays was among a few banks that began offering five-year-only, fixed-rate conduit pools in late 2022, a move that was instrumental in providing liquidity to a constrained market for properties with shorter-term owners, according to Larry Kravetz, head of CMBS finance at the investment bank. He said the five-year, fixed-rate loan will remain an attractive financing tool despite the expectation of lower interest rates. That’s down to how expensive it is to purchase interest rate caps for floating-rate deals tied to the secured overnight financing rate (SOFR).  

“Some of the five-year, fixed-rate debt would have otherwise gone to non-bank lenders as floaters,” Kravetz said. “But, because of how expensive it was in the shape of the yield curve as it relates to SOFR and the cost of the caps, some of that moved to five-year fixed and it became an option for someone who’s not a longer-term holder.”

While conduit loans are more common in the CMBS space heading into 2024, single-asset single-borrower (SASB) deals are also expected to come more into play with less unknowns on interest rates, according to Caldwell. The vast majority of Barclays’ SASB transactions have been centered around hotels and malls, but Caldwell said there has recently been more market activity for industrial and data center refinancing deals of late. The average-size SASB deal is down about 30 percent from four years ago. 

A wild card in 2024 will be whether lending starts to flow again from banks, big and small, which were largely on the sidelines for much of 2023. Regional banks began to fill the void of larger banks when interest rates began to spike in 2022. Many of them, though, were also forced to step back last year after a regional banking crisis unfolded in March, leading to the shuttering of Silicon Valley Bank and Signature Bank. 

Banks head into 2024 with heavy loads of CRE stress on their books as evident by a December report from the National Bureau of Economic Research showing a 10 percent to 20 percent default rate on loans. Those defaults could equate to $80 billion to $160 billion in losses. 

Chris Coiley, Valley National Bank’s head of commercial real estate for the New York and New Jersey markets, said the Dec. 13 Fed meeting provided good affirmation of stability with interest rates that should pave the way for more deals. He cautioned that regional banks will likely remain selective with the loans they do go after, prioritizing existing clients given continued pressures facing property owners with higher energy and insurance costs.

“You’re going to see a very guarded approach by the banks and a taking care of your client approach,” Coiley said. “Knowing who you do business with and the asset class you are investing in with the borrower is going to be the primary focus, and I don’t think you’ll see banks doing a deal just for the sake of growth.” 

Many regional banks have been looking to improve their risk exposure to commercial real estate by closely examining portfolio performance through stress testing fundamentals of the potential loans such as interest rates, cap rates and cash flows, Coiley said. He added that regional banks are poised to fill an important lending void in 2024 as the biggest banks still grapple with trying to strengthen their balance sheets and reduce property holdings while also having to deal with increased regulations. 

Debt funds, too, might step into this void in a bigger way by injecting critical capital for property owners in 2024.

Some of the challenges limiting lending volume at banks are likely to be long-lasting, according to  Warren de Haan, CEO of Acore Capital. That will create more opportunities for alternative lenders for acquisitions as well as for refinancing looming maturities. 

“If you are a lender sitting in our position, the first half of 2024 could be the beginning of what I would describe as maybe one of the best lending vintages of my career, and I don’t think that that’s going to be short lived,” said de Haan, who has more than two decades of experience in the CRE capital markets. “I think it is going to be a multiyear opportunity set because of some of these structural nuances or influences from regulators through bank balance sheets and so on that need to get worked through over time.”

De Haan noted that Acore is poised to see a big boost in lending volume in 2024 if lower interest rates spur increased investment sales activity. That’s because about 75 percent of its business is centered around acquisition loans. He added that there are also opportunities for “selective” refinancings in 2024, given that there are nearly $1 trillion in CRE loans maturing by the end of the year.

Shadowing any optimism for lending volume in 2024 is a realization that the increase will likely be a slow one. Yes, the Fed gave the industry a shot in the arm in late 2023 with interest rate stabilization. Jim Flynn, CEO of Lument, said that still means only a modest uptick in lending for 2024. Flynn does, however, see some positive signals for the multifamily sector in particular, where Lument is a very active lender. A recent survey that Lument conducted of 300 middle-market multifamily owners showed a majority plan to be net sellers this year.

“There have been a number of owners sitting on the sidelines waiting for the dust to settle and for rates to be in a stabilized range,” Flynn said. “It provides the ability to do some real long-term planning about whether they want to be in or out of assets and whether they want to sell certain parts of their portfolio and move into new assets.”

Andrew Coen can be reached at