Commercial and multifamily loan originations were cut in half in the third quarter compared to the prior year, according to the Mortgage Bankers Association’s quarterly survey.
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Lending was down 49% from 2022 and down 7% from Q2 2023, MBA reported. A drop was seen across all property types and capital sources.
Uncertainty of market conditions likely drove the decrease, Jamie Woodwell, MBA’s head of commercial real estate research, said in a news release.
“Year-to-date CRE mortgage borrowing has fallen 44%, driven by questions about some properties’ fundamentals, uncertainty about property values, and higher and volatile interest rates,” Woodwell said. “Greater certainty around those conditions is a key prerequisite to breaking the logjam of transaction activity.”
The largest decrease was in healthcare property lending, which showed a 76% decrease from the third quarter of 2022, according to MBA. That was followed by a 52% decrease in hotel property lending, a 51% decrease in retail and a 50% decrease in multifamily over the same period.
Office property lending saw a 49% decrease, while industrial saw a 35% drop, according to the report.
The dollar volume of loan originations for depositories also decreased 73% year-over-year, the report says. The largest decrease among lender types came from investor-driven lenders, which saw a 55% decrease in originations.
CMBS loans dropped by 5%, and life insurance company loans fell by 4%.
“Debt is available, but not in the same amount as before, and it is also meaningfully more expensive,” Mike Comparato, president of Franklin BSP Realty Trust, told Reuters. “That leaves a few choices, and none of them are ideal.”
A series of regional bank failures sparked fears of tighter lending conditions for the commercial real estate market early this year, Business Insider reported. Banks are looking to manage their exposure to the sector, with around $1.5T of debt expected to reach maturity over the next few years, which could bring another wave of distress.
“It’s an asset class that deserves monitoring,” Deutsche Bank AG CEO Christian Sewing said last month.
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