Dive Brief:
- Multifamily mortgage debt originations plummeted 50% year over year, according to the Mortgage Bankers Association’s latest Commercial/Multifamily Mortgage Debt Outstanding quarterly report.
- Overall, commercial and multifamily mortgage loan originations fell 49% YOY in the third quarter. On a YOY basis, there was a 76% decrease in the dollar volume of loans for healthcare assets since last year, a 52% decrease for hotels, a 51% decrease for retail properties, a 49% decrease for office loans and a 35% decrease for industrial facilities.
- Loans originated by depositories fell 73% YOY, followed by a 55% decline for investor-driven lenders, a 27% decrease for government-sponsored enterprises, a 5% decrease for commercial mortgage-backed securities and a 4% for life insurance companies.
Dive Insight:
Though the declines were steep across commercial real sectors and originators, Jamie Woodwell, MBA’s Head of Commercial Real Estate Research, noted that volumes were more stable and that some sectors, including industrial properties and life company lenders, showed an uptick in Q3.
Multifamily originations fell 16% from Q2 to Q3, while overall commercial loans only dropped 7% in the same time period. Still, Woodwell said more clarity is needed before things turn around in commercial real estate.
“Year-to-date CRE mortgage borrowing has fallen 44%, driven by questions about some properties’ fundamentals, uncertainty about property values and higher and volatile interest rates,” Woodwell said in the report. “Greater certainty around those conditions is a key prerequisite to breaking the logjam of transaction activity.”
On Palo Alto, California-based apartment REIT Essex Property Trust’s third-quarter earnings call, CEO Angela Kleiman noted that multifamily buyers are staying on the sidelines as interest rates continue to compress returns.
“We have seen several marketed deals not transact this year as sellers await a less volatile interest rate environment,” she said. “There is little evidence to suggest transaction activity will pick up in the near term as bid-ask spreads remain wide.”
But others hold out hope that signals from the Federal Reserve could spark transactional activity. “High rates — with the possibility of further increases — have made underwriting into an unknown future quite challenging,” said Karlin Conklin, co-president and chief operating officer of Los Angeles-based real estate sponsor Investors Management Group. “When the Fed signals the worst is behind us and rates start falling, investor options for refinancing or selling into a stronger market become more compelling.”
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