Commercial Real Estate Lending Volume is Rising
Commercial and multifamily loan origination volumes shot up by 72% in the first quarter compared to the year before, according to a new report from the Mortgage Bankers Association. While this marks a 39% reduction from the fourth quarter, end-of-year lending nearly always outpaces all other quarters.
The strong, sustained demand for multifamily and industrial real estate in particular drove the high volume, according to MBA’s vice president of research, Jamie Woodwell. However, it isn’t just these two golden asset types that drove the huge increase. Lending activity increased in virtually all property sectors.
The hospitality real estate sector saw the highest increase in relative terms, with first-quarter originations rising an incredible 359% compared to the first three months of 2021. A large increase is perhaps unsurprising — hospitality real estate is faring significantly better now than a year ago. Retail lending also jumped by 88% compared to the same time the previous year.
Commercial Mortgage Origination Volume by Loan Type
Depository originations, primarily bank loans, increased 194% year-over-year, the report stated, the fastest of all lender categories. Life company loans jumped by 81% during the same period, followed by investor-driven lenders at a 77% increase.
CMBS loans faced a smaller increase of 56 percent. The securitized loans have experienced some trouble in recent months, particularly with loans encumbering assets in the office and retail sectors of major metropolitan areas. A Moody’s report from March highlighted that nearly 8% of CMBS loans were classified as “troubled,” Bisnow reported.
Commercial Real Estate Origination Forecast
Despite a strong first quarter for commercial real estate originations, the second quarter and beyond could face significant challenges. The largest obstacle is rising interest rates: As borrowing becomes more and more expensive, fewer investors may look for financing. That said, investors will likely not hesitate to borrow to finance acquisitions of industrial and multifamily real estate, given the strength of both real estate sectors.
That said, with the Fed anticipated to increase rates another two times this year alone, less stable asset types, from retail to hospitality, may see a decline in investment activity and lending.