Senior economist reveals where commercial brokers can find deals
Much of the discussion regarding changes to bank reserve requirements proposed by the Federal Reserve has surrounded the impact on the conventional mortgage market.
Wholesale mortgage brokers have discussed the possibilities of banks getting back into the channel, although how it is done would need to be closely monitored.
But this could also have a major impact on the commercial lending space. If banks get more heavily involved on the commercial side, it could see a boost in activity. One economist thinks that could happen as soon as Q2.
Xander Snyder (pictured top), senior commercial real estate economist for First American, said not many people are discussing these potential changes on the commercial real estate side, but they could have major implications.
“One underappreciated development is the proposed revision to bank reserve requirements,” Snyder told Mortgage Professional America. “They are not final, and will be in review until June, but the initial proposal was much less restrictive than many expected. If adopted in something close to its current form, it would give bank lending additional momentum at a time when lending standards are already beginning to ease.
“That could become an important tailwind for CRE financing, but the new rules wouldn’t be implemented by the end of the second quarter.”
A potentially strong quarter ahead
Snyder said if banks get back into the space more heavily, it could bring a surge of capital from investor lenders as well.
“If banks continue to regain share in first-lien lending, some investor lenders may respond by moving higher in the capital stack to preserve returns, though this would come with additional risk,” Snyder said. “I imagine we will begin seeing this shift more in earnest in the second quarter. The second quarter is gearing up to be a good one for capital markets activity and debt placement. Banks are also becoming more active again, which should improve financing options for stable assets.”
For brokers looking for opportunities in the second quarter, Snyder thinks transitional financing solutions could be one potential path.
“There are also opportunities in bridge and recapitalization work for multifamily properties in high-supply Sun Belt and Mountain markets,” he said. “Many of those properties are not fundamentally impaired, but they are still working through slower lease-ups, concessions, and softer rent growth, which can still make permanent financing difficult.
“For mortgage brokers, that creates opportunity in transitional financing solutions that give owners time to stabilize operations and refinance later on better terms.”
As far as areas that may continue to struggle, distressed properties still present challenges. However, distressed and soon-to-be maturing properties could provide brokers with a chance to step in.
“In terms of headwinds, distress remains elevated, especially in office, and multifamily fundamentals in high-supply markets are still soft,” Snyder said. “For brokers, there will be strong opportunities in parts of the market where borrowers need to act, especially as the maturity wall continues to move through the system and distress remains elevated.”
Looking back at Q1
While first-quarter data won’t be finalized for a couple of weeks, Snyder said some trends can be read by looking at the first couple of months of the quarter.
“Year-to-date through February, sales activity was down roughly 4% year-over-year,” he said. “Office sales volume increased the most, by 17%, driven by suburban office. Industrial and hotel also increased, while retail and multifamily were notably weaker, declining by 34% and 20%, respectively. However, the monthly series can be volatile, so it’s worth being cautious about drawing conclusions until the first full quarter data is available.”
As far as looking for trends in the pricing and leasing statistics, the picture was uneven. Some sectors saw gains in the first two months of the year, while others fell.
“Prices were mixed, with annual declines in multifamily and hotel, but gains in most other sectors,” Snyder said. “Cap rates moved up or sideways in most sectors. Industrial and hotel were both up 40 basis points year over year, multifamily was up 10 basis points, office was up 5 basis points, and retail was roughly flat to slightly down.
“Leasing trends were also mixed. Office net absorption was modestly positive. Industrial deliveries continued to outpace absorption, but fundamentals appear to be stabilizing. Retail absorption turned negative in the first quarter, though this was due primarily to move-outs, rather than weak leasing activity, which remained healthy in the first quarter. In multifamily, absorption improved from the fourth quarter, but new supply still outpaced demand, and rent growth was essentially flat.”
While increasing rates in the second half of the quarter had a tangible impact on the consumer mortgage market, Snyder isn’t convinced that those increases have impacted the commercial side just yet.
“It’s still too early to say with much confidence,” he said. “Interest rate volatility did start to pick up earlier in the year, but the biggest jump came in March. We do not yet have a full picture of how much that affected the commercial market. Looking just at January and February, rate volatility increased somewhat, while commercial transaction volume was down about 4% compared with the same period in 2025.
“That suggests volatility might have been a headwind for activity, but the evidence is not strong enough to say it was the main reason activity slowed. I’m also skeptical that rate volatility would show up that quickly in CRE sales activity.”
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