Commercial and multifamily debt grows slightly in first quarter despite drop in originations

By Theo Wayt · June 29, 2020

Commercial and multifamily mortgage debt in the U.S. rose by 1.7% quarter-over-quarter to a total of $3.72 trillion in the first quarter of 2020, an upward trend likely to slow down or reverse in the second quarter due to the coronavirus pandemic, according to a Monday report from the Mortgage Bankers Association. 

The increase of $61 billion in outstanding debt from the fourth quarter of 2019 was a sign rising property values, strong income and low interest rates continued to support the economy, according to the trade group.

“The rise in commercial and multifamily mortgage debt in the first three months of the year carried forward the strong level of activity during 2019,” said Jamie Woodwell, MBA vice president of commercial real estate research. “With the onset of the COVID-19 pandemic, borrowing and lending has slowed, and some of the tailwinds from earlier this year have reversed.”

During the first quarter, the MBA said asset-backed securities like commercial mortgage-backed securities and collateralized debt obligations saw the largest percentage growth at 2.4% or $12.2 billion. Banks experienced the largest growth of commercial and multifamily debt in dollar terms, with an increase of 1.7%, or $24.1 billion. 

Meanwhile, life insurance companies grew their holdings of outstanding commercial and mortgage debt by 1.5% or $8.3 billion, while agency, government sponsored-enterprise and mortgage-backed securities portfolios saw an increase of 1%, or $7.4 billion, according to the MBA. 

“Nonfinancial corporate business saw the largest increase – 13.3% – in their holdings of commercial/multifamily mortgages,” said the report. “Conversely, finance companies saw their holdings decrease 0.5 percent.”

Commercial and multifamily loan delinquencies inched up slightly during the first quarter, largely driven by a severe reduction in hotel and retail spending during coronavirus-related shutdowns, the trade group said in an earlier report.

The organization has also said that the first quarter of 2020 saw a 2% decline in commercial and multifamily loan originations, adding that, "Overall transaction activity has fallen given the economic uncertainty stemming from the virus. Property investors and lenders have now turned more of their attention to their existing portfolios instead of new business opportunities.”

Monday’s report added that upcoming quarters “are likely to see greater differentiation in debt levels, both by capital source and property type, as investors and lenders assess market conditions.”

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