CRE Loan Originations Drop to Nine Year Low
There is a “logjam” in the CRE sales and financing markets.
The Mortgage Bankers Association has just reported another quarter of low commercial and multifamily loan originations – so low that it marked the slowest first quarter since 2014 – in what is historically the slowest time of the year.
In Q1 2023, loan originations plunged 42% lower than the previous quarter, and 56% lower than in the same period in 2022. The downward trend began in the third quarter of 2022.
“Uncertainty and volatility in regard to interest rates and property values, and supply and demand imbalances for some property types, has led to a logjam in commercial real estate sales and financing markets,” said James Woodwell, the association’s head of commercial real estate research. “As loans mature and adjustable-rate loans reset, we should start to get greater insights into where things stand.”
The dollar value of loans by property type also dropped sharply in Q1 2023 compared to the first quarter of 2022. Year over year lending volumes for industrial properties fell 72%, healthcare properties 69%, office properties 67%, multifamily 55%, and hotels and retail 8% each.
Most investor types were impacted. That included life insurance companies, investor-driven lenders, commercial mortgage-backed securities (CMBS), depositories, and government sponsored enterprises like Fannie Mae and Freddie Mac.
The downward trend in the number of loan originations between Q4 2022 and Q1 2023 was observed in all sectors of CRE. The two exceptions were retail, where loan originations rose 12%, and hotels, where loans increased 5%, though the dollar value of loans to these segments fell. The slump in loan values also continued, affecting all investor types except for CMBS, where the dollar volume of loans all but doubled to 99%.