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Commercial Mortgage Volume Down

Commercial mortgage originations fall 2% from first quarter

August 20, 2008

By MortgageDaily.com staff

While quarterly commercial mortgage production has tumbled from last year, volume has recently stabilized. Meanwhile, fundings for health care properties have soared. Commercial loan securitizations have all but disappeared, though commercial banks have recently begun picking up some of the slack.

Second-quarter commercial mortgage originations fell 2 percent from the first quarter, the Mortgage Bankers Association reported today.

Loans on industrial properties fell 23 percent, while multifamily property fundings were down 14 percent and retail property loan volume was off 7 percent.

But the volume of mortgages for health care properties soared 90 percent from the first quarter. Office property production jumped 33 percent and hotel financings were 21 percent higher.

Issuance of commercial mortgage-backed securities tumbled 53 percent from the first quarter to the second quarter -- reaching its lowest level since at least 2001. Commercial bank portfolio lenders, however, saw a 27 percent increase and life insurance fundings were up 8 percent. Secondary purchases by Fannie Mae and Freddie Mac were flat.

Compared to the second quarter 2007, commercial mortgage production was 63 percent lower.

The decline in year-over-year business was led by an 87 percent decrease in hotel loans. Office property loan volume was down 65 percent, while retail property financing fell 63 percent and loans for industrial properties were down 57 percent. Multifamily production declined 42 percent.

"The slowdown in originations has come from both a decrease in the supply of capital available and a decrease in the demand for new mortgages," Jamie Woodwell, a commercial research executive for MBA, said in the statement. "It is likely volumes will remain muted until buyers, sellers, borrowers, lenders and their expectations of rates and terms match closely enough for transaction activity to pick back up."

The one bright spot in year-over-year activity was in health care property loans -- which jumped 66 percent.

CMBS issuance tumbled 98 percent from the second quarter 2007, while commercial bank activity was down 29 percent and life insurance fundings fell 27 percent. Government sponsored enterprise purchases, however, were up 66 percent.

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