It’s the start of a new decade, and commercial real estate participants are walking around humming their own version of “Walking on Sunshine,” a 1985 hit song by Katrina and the Waves.

The combination of low, low interest rates and an economy that keeps chugging along has made it difficult to be negative about commercial real estate.

Commercial lenders would be hard-pressed to disagree.

Delinquency rates for packaged commercial real estate loans that were sold as commercial mortgage-backed securities reached the post-financial crisis low of 2.34% in November and stayed there in December, according to recent research by Trepp LLC, a New York-based analytics firm. That is down significantly from the high of 10.34% reached in July 2012.

The low delinquency rate in commercial mortgage-backed securities has helped the sector bounce back from several off years.

Last year ended with about $97.8 billion in issuing new commercial mortgage-backed securities, a 27.08% increase from 2018 and the highest issuance since 2007, according to Commercial Mortgage Alert, an industry publication.

There is no doubt that rates played a significant role in the rebound.

Commercial mortgage rates are down significantly from the end of 2019 because of the dramatic drop in Treasury yields and are now hitting floors of 3% for lower leverage 5- and 10-year mortgages, according to the John B. Levy & Co. National Mortgage Survey. Higher leverage 10-year conduit loans are pricing wider and range from 3.50% to 4.00% range.

Along with commercial mortgage-backed securities lenders finding deals plentiful, Freddie Mac and Fannie Mae continued to churn out production despite less competitive pricing in late 2019.

Fannie Mae indicated that its Delegated Underwriting & Servicing platform lenders provided more than $70 billion in financing to support the multifamily market in 2019, the highest volume in the history of the program. Freddie Mac provided $78 billion in loans backed by multifamily properties in 2019.

All this sunshine should come as no surprise to participants in the Richmond region’s real estate.

From owners and architects to general contractors and brokers, the market has been very active with no signs of it slowing down anytime soon.

Data from Real Capital Analytics, a New York-based commercial real estate data firm that was founded by Midlothian native Robert M. White Jr., shows that 2019 was a good year for transaction volume, but not the best.

Sales volume for all commercial transactions over $2.5 million in 2019 were down about 27% from the end of 2018. In fact, the $1.56 billion total for 2019 is very close to 2017’s results and the fourth best year in the last five.

So why does it feel so hot in the market?

The Real Capital Analytics data shows apartment sales in 2019 stood at $865.8 million — the highest on record and up 10% from 2018.

Cap rates for apartment buildings are lower now than at the end of 2018, hovering just under 6% according to data from Real Capital Analytics.

The combination of more robust sales volume and the higher prices that come with lower cap rates supports the notion that the market was strong in 2019.

The other factor is new construction starts.

For instance, multifamily construction starts nationwide are up an estimated 7.8% for 2019 compared with 2018, fueled by a whopping 74.6% leap for December 2019 when compared to the same month in the prior year, according to data from the U.S. Census Bureau.

John B. Levy & Co. partner and investment banker Andrew Little can be reached at

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