Commercial, multifamily loan originations set record

The $58.3 billion in loan originations reported for the third quarter was 64 percent higher than the third quarter of 2004 and 31.2 percent higher than the second quarter of 2005, according to a Nov. 17 MBA news release. The quarter-to-quarter increase was led by substantial gains among multifamily and office property types, while commercial mortgage-backed securities conduits and life insurance companies led the way among investor types.

MBA also reported that year-to-date loan originations were 43.6 percent higher than they were last year at this time.

“Capital continues to flow into the commercial and multifamily real estate markets on both the debt and equity sides,” said Doug Duncan, MBA chief economist and senior vice president of research and business development, in the release. “The 31.2 percent quarter-to-quarter increase in origination volume indicates that the rate of growth in this market is continuing at an impressive pace.”

The increase in commercial/multifamily lending activity during the third quarter was across all property types. The $22.8 billion increase over the third quarter of 2004 included a 55 percent increase in loans for office buildings, a 45 percent increase in loans for multifamily properties, a 33 percent increase in loans for retail and an 80 percent increase in loans for industrial space. The largest percentage increase in lending was for hotel properties, which saw a 531.6 percent increase from third-quarter 2004. This major percent increase in hotel properties is largely due to a surge of production volume over the last two quarters.

Among investor types, commercial banks and commercial mortgage-backed securities conduits drove much of the overall increase although lending activity increased among almost all types. Mortgage bankers’ originations for conduits increased 144 percent from the third quarter of 2004; originations for commercial banks increased by 33 percent; and originations for life insurance companies increased 22 percent. Originations for Fannie Mae increased 7 percent; originations for Freddie Mac increased 18 percent; originations for the Federal Housing Administration increased 104 percent; and originations for pension funds dropped by 11 percent.

Multifamily was again the dominant property type, representing 34 percent of total third quarter 2005 originations. Office properties were the next most active property group, with 24 percent of the total, followed by retail properties with 15 percent of the total.

Commercial mortgage-backed securities conduits purchased the largest share of loans originated during the third quarter, 41 percent of the quarter’s total. Originations for commercial banks were 19 percent of the total; loans for life insurance companies were 17 percent of the total, and the combined originations for Fannie Mae and Freddie Mac were 10 percent of the total.

Originations by commercial/multifamily mortgage bankers in the first three quarters of 2005 were 43.6 percent higher than they were at the same time last year, led by loans for multifamily properties and for CMBS conduit investors.

Year-to-date originations of multifamily loans increased by 36 percent compared to last year’s first three quarters, while year-to-date lending for office properties increased 38 percent and for retail by 23 percent. Lending for hotels grew by 298 percent.

The average loan size increased for all property types between the third quarter of 2004 and the third quarter of 2005, including a jump in the average loan size for hotels from $19 million to $52 million. A robust market in the sale and purchase of hotel properties combined with a small number of high dollar hotel property transactions drove a large portion of the increase.