Lending and borrowing, like other financial markets tend to fluctuate. Ebb and flow predict future lending activity and performance of commercial mortgages.
None can predict how financial markets respond. But, economic indicators allow real estate speculators to make market projections. When analyzing commercial mortgage markets, origination method and structure of mortgage loan funds are observed.
LENDING FROM ALTERNATIVE SOURCES
Conventional lending institutions specialize in commercial mortgage backed securities. Yet, these have reduced commercial mortgage loan approval. Because of the Dodd-Frank Act, institutions are preparing for further regulation. For instance, at end of fiscal year 2017, instead selling bundled commercial mortgage derivatives and transferring mortgage risk on the open (stock) market, this Act requires lenders keep or service 5% of its new commercial mortgage portfolio. Obtaining a commercial mortgage loan is inherently difficult. Thus, difficulty encourages real estate speculators to seek funding from alternative means.
IMPACT OF INTEREST RATES
According to the Department of the Treasury, the Federal Reserve has incrementally increased interest rates. While economic trajectories trend upward, due to higher loan sizes, an interest rate increase impacts commercial mortgage lending. With an interest rate increase, one expects fewer commercial mortgage loan approvals. Still, higher interest rates constrict economic growth. But, rising interest rates-to include cessation of quantitative easing may serve to support financial growth.
Regardless of economic trajectories, commercial mortgage funding remains available. These trajectories affect loan service institutions. Within traditional lending, regulatory mandates have greater impact. Yet, these mandates have less influence on private equity lenders.
During the loan decision process, in identifying profitable commercial enterprises, both traditional lending modalities and private equity firms stay inclined to base approval on real estate market indicators.