Commercial Mortgages See First Gain Since ‘07

NEW YORK CITY-Manhattan commercial mortgage origination thus far in 2010 has increased for the first time since 2007, CB Richard Ellis said Wednesday. The report dovetails with results from the latest quarterly Mortgage Bankers Association survey, which similarly shows that lending for commercial and multifamily mortgages nationally is up year over year as well as quarter over quarter. Both locally and nationally, however, loan originations are still well off from peak levels.

“After the recession began, tightened standards led to a significant slowdown in lending. Today, however, lenders are increasingly competing with each other to make loans on quality assets,” says Kyle Schoppmann, senior managing director with CBRE’s New York City debt and equity finance group, in a release. “Although lending standards remain conservative compared to the height of the market, they have loosened considerably from where they were a year ago.”

Titled “Manhattan Debt & Equity Finance, Third Quarter 2010,” the report finds that originations through the end of the third quarter were up 23% compared to the first nine months of 2009. However, the report, which is based on a newly introduced proprietary index from CBRE, also provides a basis for measuring how far originations fell from the peak and how far they still have to climb: total commercial lending volume in Manhattan decreased by an estimated 53% between 2007 and 2008, and decreased a further 58% between ’08 and ’09.

The report notes that commercial real estate lending has risen this year primarily due to a stronger economy with more stabilized rents and asset values, lower interest rates and increased competition among lenders. That upward trend is expected to continue into 2011, according to CBRE.

Conservative underwriting still prevails. CBRE’s report notes that most lenders today don’t go beyond a 75% loan-to-value rate. By comparison, some lenders three years ago provided mortgage LTVs of 85%, while exceeding 95% on the LTV rate for the full capital stack. LTVs may begin increasing along with competition among lenders to make loans for quality deals, CBRE states.

Nationally, Q3 commercial and multifamily mortgage loan originations were 32% higher than during the same period last year and 15% higher compared to Q2, the MBA said earlier this week. That overall increase during Q3 was driven mainly by increases in originations for multifamily and industrial properties. The findings were part of the association’s Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations.

Compared to Q3 ‘09, the increase included a 129% rise in loans for industrial properties, a 37% increase in multifamily loans, a 36% increase in office loans, a 19% increase for retail loans, a 20% jump in hotel-related mortgages and a 46% drop in health care property loans, according to the MBA.

“Commercial and multifamily mortgage lending continued to pick up during the third quarter,” Jamie Woodwell, MBA’s VP of commercial real estate research, says in the report. “Today’s low interest rates make for a very attractive borrowing environment, but relatively low levels of loan maturities and a slow, albeit rising, sales market continued to dampen overall commercial mortgage demand.”

The MBA said origination volumes for life companies and Fannie Mae and Freddie Mac were relatively strong in Q3. The reemerging CMBS sector still produced very low numbers in absolute terms but showed a strong increase on a percentage basis. During Q3, mortgage borrowing from commercial banks fell on both a quarter-over-quarter and year-over-year basis.