Commercial mortgage origination activity nearly halved in 2023

Multifamily stands out in the struggling commercial lending landscape

Commercial mortgage origination activity nearly halved in 2023

Commercial real estate (CRE) mortgage originations were down by half in 2023 as property owners paused borrowing. However, multifamily remained a bright spot.

Total CRE borrowing and lending reached an estimated $429 billion, a 47% decrease from 2022's figures and a 52% plunge from the record high of $891 billion set in 2021, according to the Mortgage Bankers Association’s (MBA) latest report.

After excluding activity from smaller and mid-sized depositories, MBA's survey tracked $306 billion of loans closed by dedicated commercial mortgage bankers in 2023 – down 49% from $595 billion the year before.

“Higher interest rates, uncertainty about property values, and questions about some properties’ fundamentals led to a steep fall-off in borrowing and lending backed by commercial real estate last year,” said Jamie Woodwell, head of commercial real estate research at MBA. “The declines were broad-based, covering every major property type and capital source.”

Despite these challenges, multifamily properties remained a relatively active segment, with an estimated $264 billion in total lending and $178 billion. First liens made up 96% of the dollar volume closed by mortgage bankers.

According to MBA, depositories were the leading capital source of CRE mortgage debt, followed by life insurance companies and pension funds, government-sponsored enterprises (Fannie Mae and Freddie Mac), private label CMBS, and investor-driven lenders.

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Woodwell noted that if property owners had the option to delay their selling or refinancing decisions, they often chose to do so.

“The sustained growth in the amount of CRE mortgage debt outstanding signals that much of the drop in originations was driven by a decline in borrower demand stemming from slowdowns in sales transactions and refinances,” he said. “If property owners had the ability to sit pat, they generally did.”

Looking into 2024, Woodwell provided a cautious outlook but pointed to potential activity increases.

"All indications are that 2024 is also off to a slow start. While higher interest rates are likely to continue to act as a deterrent for many property owners, more than $900 billion of maturities – and perhaps acquiescence to those higher rates – are likely to bring some additional deals to the market this year," Woodwell stated.

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