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Commercial Mortgages Top $3 Trillion

Commercial Mortgages Top $3 Trillion

MBA quarter data book

July 11, 2007


photo of Coco Salazar
Quarterly originations in the commercial mortgage sector were off, according to an 84-page trade group report. But activity, including growth in issuance and debt outstanding, was still strong overall. Commercial banks continued to hold the most mortgages, while government-sponsored and government-owned organizations continued to hold the most debt.

First quarter commercial and multifamily mortgage originations were down 15 percent from the prior quarter but 37 percent higher than in the comparable period a year earlier, according to the Mortgage Bankers Association’s latest Commercial Real Estate/Multifamily Finance Quarterly Data Book.

“The first quarter’s Data Book profiles an active commercial real estate finance market,” said Jamie Woodwell, an MBA research director, in an announcement. “”Strong property markets and considerable REIT privatization drove highlights including property sales that were up 73 percent compared to last year’s first quarter, commercial/multifamily mortgage originations that were up 37 percent, CMBS issuance that was up 32 percent and commercial/multifamily mortgage debt outstanding that topped $3 trillion for the first time.”

The quarterly downfall in originations reflected “the industry’s usual push to finalize deals before the end of the year, and the traditional and subsequent drop-offs in first quarter numbers,” MBA said. Originations for all property types fell, except hotel.

The full-year upturn was due to originations increasing for all property types. Loans for health care properties led the way due to an annual increase of 64 percent, followed by a 62 percent boost in office property loans, 37 percent upswing in hotel loans, 26 percent improvement in multifamily loans, 25 percent increase in retail property loans and a 14 percent increase in loans for industrial properties, according to the report.

Among investor types, originations for commercial banks reportedly decreased from the first quarter last year, while conduits for commercial mortgage-backed securities, government-sponsored enterprises and life insurance companies saw increases.

U.S. CMBS issuance was $60.9 billion, up from the fourth quarter’s level of $46.0 billion though off from $72.3 billion in the first quarter, according to the report.

CMBS outstanding was $661 billion, up 5 percent on a linked-quarter basis and about 30 percent higher than a year earlier. Retail was responsible for nearly 32 percent of the outstanding balance, offices for over 29 percent and multifamily for about 17 percent. Of the balance, only 0.19% were foreclosure and real estate owned, 0.06% were 90 days or more delinquent, 0.05 were in the 30-day delinquent category and 0.02% in the 60-day delinquent sector, the data book indicated.

Meanwhile, commercial real estate collateralized debt obligation issuance of $6.6 billion sunk 46 percent from the fourth quarter but climbed 3 percent above the year-ago quarter, MBA reported.

Commercial/multifamily mortgage debt outstanding recorded by the Federal Reserve Board grew by $72.4 billion from the fourth quarter to $3.001 trillion, MBA said. Of the overall growth, nearly 60 percent was due to issuers of CMBS, CDO and other asset-backed securities.

Commercial banks continued to hold the largest share of commercial/multifamily mortgages — more than $1.3 trillion, or 43 percent of the total, MBA said. CMBS, CDO and other ABS issues are the second largest holders, with 22 percent, followed by life insurance companies’ 9 percent, savings institutions’ 7 percent and GSEs’ and federally related mortgage pools’ share of 7 percent.

Multifamily debt outstanding grew by about $12 billion from the fourth quarter to contribute $741 billion of the overall $3.001 trillion, MBA said. CMBS, CDO and other ABS issuers saw the largest increase in their holdings of multifamily mortgage debt and accounted for 70 percent of the growth.

Fannie Mae, Freddie Mac and Ginnie Mae, however, hold the largest share of multifamily mortgage debt outstanding at 30 percent or $143 billion in federally related mortgage pools and $81 billion in their own portfolios. Commercial banks hold the second largest share.

Information collected before June 4 showed that there was “widespread improvement in commercial real estate markets in recent months,” MBA said. More than half of the Fed banking districts reported that leasing activity was picking up in most of their major markets while vacancy rates were dropping. Boston, New York, Philadelphia, and San Francisco also mentioned increases in office rents. Philadelphia, Richmond, Minneapolis, and Dallas reported strong demand for industrial space, especially warehouse space. Meanwhile, Chicago reported sluggish industrial development. All the districts that mentioned commercial construction activity gave positive reports.

The quarterly report also listed the top 100 commercial and multifamily loan servicers as of the yearend 2006. Wachovia Securities led with $306.6 billion in U.S. master and primary servicing of commercial/multifamily loans in U.S. CMBS, CDO and other ABS, followed by Capmark Finance’s $229.3 billion, Midland Loan Services with $213.4 billion and Wells Fargo’s $132.9 billion.

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