The Mortgage Bankers Association (MBA) is projecting an 11% increase in lending for commercial real estate mortgages over 2012 totals, which would equal $254 billion in loans. MBA analysts note that 2012 beat out the previous year by 24% and expects the momentum to continue through this year. Dollar volume increased the most in the hotel sector, although nearly every sector saw volume boosts, including office, multifamily and industrial properties. The MBA also expects manageable loan maturity in 2013 with a 21% decline in volume from last year. For more on this continue reading the following article from National Real Estate Investor.
Commercial and multifamily mortgage originations ended 2012 24 percent higher than 2011, according to the Mortgage Bankers Association’s commercial/multifamily mortgage bankers originations index.
The index increased 49 percent between the third and the fourth quarters of 2012, and was also up 49 percent compared to the fourth quarter of 2011.
The increase included a 331 percent increase in the dollar volume of loans for hotel properties, a 78 percent increase for office properties, a 49 percent increase for multifamily properties, a 46 percent increase for industrial properties, a five percent increase in retail property loans and a 26 percent decrease in health care loans.
Among investor types, the dollar volume of loans originated for conduits for CMBS increased by 228 percent over last year’s fourth quarter. There was a 68 percent increase for commercial bank portfolio loans, a 51 percent increase for Government Sponsored Enterprises (or GSEs—Fannie Mae and Freddie Mac), and there was an 18 percent increase in the volume of loans originated for life insurance companies.
Full-year originations for hotel properties increased 61 percent. There was a 36 percent increase for multifamily properties, a 19 percent increase for retail properties, a 10 percent increase for industrial properties, a nine percent increase for office properties and a six percent increase for health care properties.
Among investor types, for the full year 2012 versus 2011, commercial bank portfolios saw an increase in loan originations of 51 percent, loans for conduits for CMBS saw an increase in loan volume of 45 percent, originations for GSEs increased 43 percent and loans for life insurance companies were unchanged.
More to come
In its second annual forecast of the commercial/multifamily real estate finance markets, the MBA projects originations of commercial and multifamily mortgages will grow to $254 billion in 2013, an increase of 11 percent from 2012 volumes, and continue to rise to $289 billion in 2015. Originations of multifamily mortgages are forecast at $100 billion in 2013.
Commercial/multifamily mortgage debt outstanding is expected to grow in 2013, ending the year above $2.4 trillion, more than two percent higher than at the end of 2012. By the end of 2015, mortgage debt outstanding is forecast to exceed $2.5 trillion.
Going forward, increased activity means more competition between borrowers and changing loan terms.
“The challenge for us is how to make sure we are delivering good relative yields compared to all the other opportunities MetLife has to invest in,” said Brian Casey, managing director and head of real estate debt strategies with MetLife Inc. Casey’s comments came during a panel discussion at MBA’s Commercial Real Estate Finance conference held in San Diego this week. Overall, MetLife completed about $9 billion in commercial real estate financing activity in 2012. “We need to deliver a liquidity premium and a risk-based capital premium.”
PNC Bank did $11 billion in new lending in 2012 with a mix of construction, permanent, interim and warehouse financing. But in the face of increasing competition, PNC may pull back this year if terms get too aggressive.
“We will not change our credit strategy,” said Diane Reid, executive vice president with PNC Bank, “We’re still looking for a good risk return. We will probably do a little less lending this year as the competition gets better and more people are willing to stretch on covenants and returns in ways that we might not want to.”
Keith Johnson, CEO of Situs Holdings, said that private funds will be aggressive players in the market and provide tough competition for established lenders.
“They are talking to borrowers a year or 18 months ahead of when their loans are maturing,” Johnson said, “We’ll see these sophisticated private funds bring pre-packaged modifications to us. It's a good deal for trust. It's a good deal for everyone involved.… They are ahead of curve. They are not waiting for these loans to go bad.”
Loan maturities stable
In addition, 2013 will be a manageable year for maturities. Overall, $119.5 billion, eight percent of the outstanding balance, of commercial and multifamily mortgages held by non-bank lenders and investors will mature in 2013, a 21 percent decline from the $150.6 billion that matured in 2012, according to MBA’s 2012 Commercial Real Estate/Multifamily Survey of Loan Maturity Volumes.
The loan maturities vary significantly by investor group. Just 5 percent ($16.0 billion) of the outstanding balance of multifamily and health care mortgages held or guaranteed by Fannie Mae, Freddie Mac, FHA and Ginnie Mae will mature in 2013. Life insurance companies will see 7 percent ($21.9 billion) of their outstanding mortgage balances mature in 2013. Among loans held in CMBS, 7 percent ($43.4 billion) will come due in 2013. Twenty-one percent ($38.1 billion) of commercial mortgages held by credit companies and other investors will mature in 2013.
Maturities will remain at a similar level in 2014 before peaking in 2015, 2016 and 2017 based on the burst of lending activity done in 2005, 2006 and 2007 before commercial real estate values peaked and the credit crisis took hold. Maturities then drop dramatically in 2018.
Additionally, in past years banks dealt with maturities with extensions and that trend seems to have slowed. About $55 billion in loans that were set to expire in 2010 got maturities extended into 2011. Similarly, $25 billion in loans that were set to expire in 2011 were pushed into 2012. But the MBA didn’t see that same effect. Fewer banks took loans expiring in 2012 and extended them into 2013.
This article was republished with permission from National Real Estate Investor.