Economists' Outlook

Housing stats and analysis from NAR's research experts.

Smaller Banks Are Main Lending Providers in REALTORS®' Commercial Markets

Commercial real estate investment trends mirrored the global economic slowdown and broader uncertainty in 2016.  Sales of global large capitalization (cap) transactions—over $2.5M—declined 15 percent year-over-year, with volume totaling $826 billion, based on data from Real Capital Analytics (RCA).  Investors took a pause from the strong pace of investments recorded in 2015, ascertaining the impact of economic and geopolitical changes upon markets. Commercial investments in the U.S. echoed the global trends, with sales volume in large cap markets closing the year at $489 billion, an 11 percent decline on a yearly basis.

In comparison to the high-end deals, 83 percent of REALTORS® who specialize in commercial investments reported transactions below the $2.0 million threshold in 2016.  Although many REALTORS® participate in transactions above $2.0 million per deal, they serve a segment of the commercial real estate market for which data are generally not as widely reported—small cap investments.

The investment environment for commercial markets remained well-diversified, totaling $6.6 trillion in 2016. Debt investments accounted for 57 percent of total, with equity comprising the rest.

Based on RCA data, the financing landscape in large cap markets remained diverse during 2016. Government agencies (Fannie Mae and Freddie Mac) captured 22 percent of total lending during the year, a larger share than in 2015, positioning them as the most active lender. The change was not surprising considering that apartment properties accounted for the largest sales volume across all property types.

real cap

Regional and local banks comprised 20 percent of total lending during the year, an increase from the prior year. CMBS originators accounted for 13 percent of lending at the high end of the market, a marked shift considering that they were the dominant player in commercial financing for several years. Life insurance companies were the fourth most active lenders for commercial transactions, accounting for 12 percent of transactions during 2016, according to RCA. They were followed by financial companies, which captured eight percent of lending deals. Private lenders were a smaller part of the funding sources, comprising only two percent of financing transactions.

Small Cap Capital

Based on NAR’s 2017 survey data, capital markets displayed a fundamentally different landscape. Local and community banks were the largest lending source in REALTORS®’ commercial markets during 2016, accounting for 32 percent of transactions.  Local and community banks maintained their market share over the past several years. The second largest capital source in 2016 were regional banks, which captured 26 percent of REALTORS®’ commercial deals, on par with the previous year.


Private investors were the third main capital providers, accounting for 10 percent of deals during 2016.  National banks came in fourth place, with eight percent market share, the same level as a year ago.  The Small Business Administration and credit unions shared an equal proportion, with six percent of the market each.  Life insurance companies were much less active in REALTOR® markets, representing three percent of deals. REITs and CMBS conduits accounted for only two and one percent of funding, respectively. Government agencies were responsible for one percent of lending in REALTOR® markets. Public companies and international banks made up less than 1.5 percent of all sales.

The lending survey highlights the marked differences between the large cap versus the small cap commercial markets.  Debt financing represents a much-larger portion of capital in small cap markets, whereas large cap deals benefit from significant equity contributions.

For more information and the full report, access NAR’s Commercial Real Estate Lending Trends 2017.