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Stories about commercial lending on multifamily, office, retail and industrial properties.

Commercial Originations Off

4th quarter volume down 16% from 2006

Feb. 8, 2004

By Mortgage Daily staff

A new report indicates commercial mortgage originations fell. The decline was led by a drop in securitizations -- which are projected to tumble by more than 50 percent this year.

Commercial production dropped 16 percent during the fourth quarter from a year earlier, the Mortgage Bankers Association said in its Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations released today.

Office property financing tumbled 73 percent, according to the report. Industrial property loans were down 50 percent, while mortgages on retail properties dropped 38 percent and multifamily volume was off 7 percent.

Fueled by large portfolio sales, hotel property originations skyrocketed -- by 349 percent from the fourth quarter 2006, MBA said. Health care properties financed were up 3 percent.

The trade group noted the decline in commercial originations was led by a drop in the volume of commercial mortgage-backed securities issued compared to 2006. CMBS issuance was negatively impacted by the recent credit crunch and other market disruptions.

"The slow-down comes most directly from disruptions in the capital markets although a few remaining large portfolio transactions continued to buoy the numbers," MBA Senior Director of Commercial/Multifamily research Jamie Woodwell stated in the announcement.

But compared to the third quarter 2007, commercial mortgage fundings rose 11 percent during the latest period, the statement said. The increase, however, was attributed to the seasonality of commercial originations.

While retail was mostly flat from the prior period, fourth quarter health care activity tumbled 50 percent, office property financings were off 48 percent and industrial property originations were down 21 percent.

However, hotel property fundings were 272 percent higher than the third quarter and multifamily fundings were up 25 percent.

"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," Woodwell added.

But Moody's Investors Service warned today that loans backing CMBS could face challenges this year as the economy weakens and capital markets remain turbulent.

The ratings agency said that although underwriting standards on loans backing CMBS have been tightening, market fundamentals in terms of credit impact have shown signs of weakening.

Moody's said it is possible commercial real estate prices will roll back to the levels seen between the middle of 2005 and late 2006 -- a decline of roughly 12 percent to 17 percent. But any increase in delinquency is not expected to reach the levels of other structured finance sectors nor the level seen in the early 1990's during the last commercial real estate downturn.

The New York-based agency projects CMBS issuance to fall from $230 billion in 2007 to less than $100 billion this year -- with a clearing out of the 2007 pipeline early this year and a lull in the middle of the year. But 2008 is expected to finish with "some back-loaded new issuance."

Moody's Managing Director Tad Philipp concluded, "Despite these challenges, CMBS will endure because its model for sizing and distributing risk makes intrinsic sense and because the other major lenders have constraints on how much additional commercial mortgage debt they can take on balance sheet."

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