Mortgage bankers’ originations of commercial and multifamily mortgage loans dropped a whopping 53% in the third quarter compared with the same period of 2007, the Mortgage Bankers Association reports.
Compared with last year, loan originations for all property types declined in the third quarter, as did originations for most investor groups, according to the Washington, D.C.-based mortgage bankers group.
Loans on hotel properties dropped 87%. Hotels are among the most vulnerable property types in a recession, as both consumers and businesses trim their travel costs. And compared with the second quarter of the year, mortgage bankers’ loan originations on hotel properties fell 71% in the third quarter.
“Uncertainty stemming from the credit crunch, and now the deteriorating economy, has led to a continued pull-back among both lenders and borrowers,” notes Jamie Woodwell, the MBA’s vice president for commercial real estate research. “The need among most investor groups to conserve capital, and the uncertainty of how the slowing economy will affect property fundamentals, is fueling a prolonged pause in all aspects of commercial real estate activity.”
Considering that the commercial mortgage securitization market has come to a standstill, it is no surprise that originations for commercial mortgage-backed securities conduits dropped a stunning 93% in the third quarter, compared with the same quarter in 2007.
And there was a 71% decline in loans going into commercial bank portfolios. Banks are looking to conserve capital in these credit constrained days and have cut down on many lending activities.
Loans originated for life insurance companies dropped 27% in the third quarter. Life companies allocate funds for commercial real estate investments, and these were likely used up earlier in the year.
Bucking the downward trend, originations on behalf of Fannie Mae and Freddie Mac rose 15% in the third quarter, with an average loan size of about $13 million. Fannie Mae and Freddie Mac were taken into government conservatorship in September but continue to remain active in the multifamily sector. The long-term scope of their activity in the sector remains unclear though.
And there were other bright spots. Compared with second quarter activity, originations for CMBS conduits gained 67%. Life insurance company originations rose 27%, and mortgage bankers originated 12% more loans for the government-sponsored enterprises.
Lending activity on all major property types declined in the third quarter, the MBA reports, compared with the same period in 2007.
Lending on office properties dropped off 61% in the third quarter. Demand for office space is generated by strong employment trends, and the U.S. employment outlook deteriorated in the third quarter as bad bets on mortgages caught up with major financial services firms. The unemployment rate stands at 6.5%.
Healthcare property loan originations saw a 59% drop in volume. Loans originated on industrial properties fell 39%, while loans backed by multifamily properties and retail properties both declined 30%.
And compared with the second quarter, commercial and multifamily mortgage originations in the third quarter dropped 11% overall, the mortgage bankers association reports. Loans for commercial bank portfolios fell 55% compared with the second quarter.
Health care property-backed originations were off 42%, and office property-backed loan volume declined 28%.
However, loans backed by industrial properties gained 22% from second-quarter levels, while loans backed by retail properties and those backed by multifamily properties each saw a 9% increase in volume.