Commercial, multifamily debt grows in 2005

At the end of 2005, $2.64 trillion in commercial/multifamily mortgage debt outstanding was recorded by the Federal Reserve, up $328 billion from 2004.

In the fourth quarter alone, commercial and multifamily mortgage debt outstanding increased by $103 billion, or 4.1 percent, also a new record. At the end of 2004, multifamily mortgage debt outstanding stood at $674 billion.

“2005 was a strong year for commercial and multifamily real estate finance,” said Doug Duncan, MBA’s chief economist and senior vice president of research and business development, in a March 15 news release. “We saw record property sales, record mortgage origination levels, and record levels of commercial/multifamily mortgage debt outstanding – all in an environment of strong loan performance and improving property fundamentals. With 2006 well under way, these trends show every sign of continuing.”

The Federal Reserve Flow of Funds data summarizes the holding of loans, or, if the loans are securitized, the form of the security. For example, many life insurance companies invest both in whole loans for which they hold the mortgage note (and which appear in the Federal Reserve data under Life Insurance Companies) and in commercial mortgage-backed securities for which the security issuers and trustees hold the note and which appear in the Federal Reserve data under CMBS issuers.

The lion’s share

Commercial banks continue to hold the largest share of commercial/multifamily mortgages, with $1.1 trillion, or 43 percent, of the total. Many of the commercial mortgage loans reported by commercial banks, however, are actually “commercial and industrial” loans to which a piece of commercial property has been pledged as collateral, and it is the borrower’s business income – not the income derived from the property’s rents and leases – that drives the underwriting, pricing and performance of the loan. Since the other loans are income property loans, meaning that the income primarily comes from rents, the commercial bank numbers are not comparable.

Commercial mortgage-backed securities pools are the second largest holders of commercial/multifamily mortgages, holding $553 billion, or 21 percent of the total. Life insurance companies hold $263 billion, or 10 percent of the total, and savings institutions hold $197 billion, or 8 percent of the total. Government sponsored-enterprises and federally related mortgage pools, including Fannie Mae, Freddie Mac and Ginnie Mae, hold $130 billion in multifamily loans that support mortgage-backed securities they issue (referred to here as federally related mortgage pools) and an additional $65 billion in “whole” loans in their own portfolios, for a total share of 7 percent.

The government-sponsored enterprises and Ginnie Mae hold the biggest share of multifamily mortgages, with $130 billion in federally related mortgage pools and $65 billion in their own portfolios – 29 percent of the total multifamily debt outstanding. They are followed by commercial banks with $140 billion or 21 percent of the total, savings institutions with $98 billion or 15 percent of the total, and CMBS issues with $95 billion or 14 percent of the total.

Between December 2004 and December 2005, commercial banks saw the largest increase in dollar terms in their holdings of commercial/multifamily mortgage debt – an increase of $151 billion, or 15 percent, which represents 46 percent of the total $328 billion increase. CMBS issuers increased their holdings of commercial/multifamily mortgages by $130 billion or 31 percent – representing 40 percent of the net increase in commercial/multifamily mortgage debt outstanding. Savings institutions experienced a net increase of $15 billion or 8 percent.

Real estate investment trusts saw the biggest percent increase in holdings of commercial/multifamily mortgages - a jump of 58 percent - while private pension funds saw the biggest drop (a net change of -2 percent).[[In-content Ad]]