Commercial and multifamily mortgage bankers’ loan originations sank by double digits in the fourth quarter of 2007 when compared to a year earlier, the Mortgage Bankers Association reported today in a quarterly survey.
Total fourth-quarter originations dropped 16 percent below the level recorded in fourth-quarter 2006, with the decrease seen across most property types and investor groups, according to the MBA’s Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations.
“The slowdown comes most directly from disruptions in the capital markets, although a few remaining large portfolio transactions continued to buoy the numbers,” said Jamie Woodwell, MBA’s senior director of commercial/multifamily research. “It’s important to note that while commercial/multifamily origination volumes have slowed, the underlying fundamentals of commercial and multifamily properties, loans and bonds generally remain quite strong.”
Decreases in total commercial/multifamily mortgage originations were led by a drop in commercial mortgage-backed security (CMBS) conduit loans, which have been impacted significantly by the recent credit crunch and other market disruptions.
The first and the second halves of 2007 proved to be dramatically different lending environments for the commercial/multifamily real estate finance industry, MBA reported. In the first half of 2007, commercial/multifamily mortgage bankers originated 38 percent more, in dollar volume, than they had been during the first half of 2006. By contrast, originations in the second half of the year ran 11 percent lower than the second half of 2006.
A driving force of this change was changes in the commercial mortgage-backed securities (CMBS) market. Originations for CMBS during the first half of 2007 ran 70 percent ahead of 2006′s first-half level, while second-half volumes ran 30 percent below the 2006 second-half levels. Originations for Fannie Mae and Freddie Mac, on the other hand, ran 18 percent ahead of 2006 levels in the first half of 2007 and 49 percent ahead in the second half. Originations in 2007 for commercial banks and life insurance companies were below 2006 levels in both the first and second halves of the year.
The decrease in commercial/multifamily lending activity during the fourth quarter was driven by decreases in originations for most property types. When compared to the fourth quarter of 2006, the overall decrease included a 73 percent decrease in loans for office properties, a 50 percent decrease in loans for industrial properties, an 38 percent decrease in loans for retail properties, an 7 percent decrease in loans for multifamily properties, as well as a 349 percent increase in loans for hotel properties and a 3 percent increase in loans for health care properties. The increase in hotel originations was heavily influenced by large portfolio sales during the period.
Among investor types, conduits for CMBS saw a decrease of 31 percent compared to last year’s fourth quarter. There was also a 15 percent decrease in loans for life insurance companies, and a 6 percent decrease in loans for commercial bank portfolios. The dollar volume of loans for government-sponsored enterprises (or GSEs — Fannie Mae and Freddie Mac) saw an increase of 41 percent.
FOURTH-QUARTER 2007 11 PERCENT HIGHER THAN THIRD-QUARTER 2007
Due to the seasonality of commercial/multifamily originations, originations tend to increase as the year progresses, and the fourth quarter held to that trend. Fourth-quarter 2007 mortgage bankers’ originations were 11 percent higher than originations in the third quarter of 2007.
Among investor types, conduits for CMBS saw a increase in loan volume of 73 percent compared to the third quarter of 2007; loans for commercial bank portfolios saw an increase in loan volume of 17 percent compared to the third quarter of 2007; GSEs saw a 7 percent increase from third quarter to fourth quarter 2007; and loans for life insurance companies decreased 27 percent during the same time span.
Compared to the third quarter, fourth-quarter originations decreased in most property types except for hotel and multifamily. Retail remained relatively the same from third quarter to fourth quarter 2007. The decline included a 50 percent decrease in loans for health care properties, a 48 percent decrease in loans for office properties, a 21 percent decrease for industrial properties, a 272 percent increase for hotel properties, and a 25 percent increase in loans for multifamily properties.