The economic fallout from COVID-19 that began in mid-March has caused capital markets volatility not seen since the Global Financial Crisis (GFC). In response, the Federal Reserve reduced the federal funds rate to a range of 0% to 0.25%, provided a new round of quantitative easing measures and opened short-term lending facilities to provide liquidity for the repurchase agreement and commercial paper markets.
Commercial mortgage markets are in a period of price discovery, with certain lenders remaining active. Interest rate floors have become commonplace, while underwriting and property-type criteria are more stringent due to tenant credit, property cashflow and valuation concerns.
Commercial whole loan spreads for 55%-to-65% LTV loans are some 100 to 140 basis points (bps) wider than Q1 average levels on closed loans. However, conditions have improved in recent weeks. The impact of wider spreads on mortgage rates has been partially offset by the decline in benchmark interest rates.