Borrowers have lots of choices as lenders make more and more capital available for commercial real estate, according to the latest report from the Mortgage Bankers Association (MBA), an industry organization.
“Across all the reports, there is a lot of mortgage debt available,” says Jamie Woodwell, vice president in the research and economics group at the MBA. “Lenders are there.”
The mortgage markets have been helped by low interest rates, improving property prices and strengthening fundamentals. All these trends have helped more borrowers qualify for loans. Lenders have been also been encouraged to make more capital available for lending. “Commercial real estate loans have performed really well, and lenders’ relative returns on commercial mortgages have been strong,” says Woodwell.
Lenders continued to increase the amount of capital available for commercial and multifamily real estate loans in the second quarter, even after they originated a record volume of loans in 2013, according to MBA’s “Mortgage Debt Outstanding” report. The level of commercial/ multifamily mortgage debt outstanding increased by $24.9 billion to $2.56 trillion in the second quarter. The rate of growth in the total amount of mortgage debt outstanding is also speeding up: The in the second quarter was 1 percent higher than the increase in the first quarter.
The new loans came from a broad range of capital sources and included a broad range of loan levels, says Woodwell. Three out of the four major types of lenders increased their lending. Banks and thrifts saw the largest increase in dollar terms in their holdings of commercial/multifamily mortgage debt at $16.3 billion, or 1.8 percent. Life insurance companies increased their holdings by $4.3 billion, or 1.3 percent, and REITs increased their holdings by $2.3 billion, or 6.3 percent.
The only type of lender that made fewer loans involved securitized lenders that raise capital by issuing commercial mortgage-backed securities, collateralized debt obligations and other asset-backed securities. Their commercial/ multifamily mortgage debt outstanding decreased by $2.3 billion, or 0.4 percent.
The outlook for commercial real estate continues to be strong despite recent volatility in the stock market. Worries about a slowing economy in Europe and other parts of the world make it less likely central bankers will raise their benchmark interest rates.
“There is a lot of uncertainty out there,” says Woodwell. “But low interest rates help real estate… Also foreign uncertainty is drawing investment to U.S. real estate.”
Apartment loans more available
Multifamily mortgage debt outstanding rose to $930 billion, an increase of $13.0 billion from the first quarter of 2014.
“The balance of mortgage debt extended to multifamily apartment owners grew by 1.4 percent during the quarter and now stands 26 percent above the level seen at the end of 2007, prior to the recession,” says Woodwell.
The universe of multifamily lenders includes finance companies of every size, including many smaller banks. Throughout 2013, 2,898 lenders made a total of 44,696 multifamily loans. The most active lender made 6,604 loans in 2013, while 666 lenders, a little less than a quarter of all active multifamily lenders, made just one multifamily loan each during the year, according to MBA’s annual “Report of Multifamily Lending” for 2013.