MBA: Commercial/Multifamily Mortgage Debt Ends Year Strong, Despite CMBS Decline
Commercial/multifamily mortgage debt outstanding increased by $46.0 billion in the fourth quarter, as three of the four major investor groups increased their holdings, the Mortgage Bankers Association reported.
The $46.0 billion represents a 1.6 percent increase from the third quarter. From a year ago, mortgage debt outstanding at the end of 2016 came in $162.0 billion higher, an increase of 5.8 percent.
Total commercial/multifamily debt outstanding rose to $2.96 trillion at the end of the fourth quarter. Multifamily mortgage debt outstanding rose to $1.14 trillion, an increase of $27.3 billion, or 2.4 percent, from the third quarter.
The analysis summarizes holdings of loans or, if the loans are securitized, the form of the security. For example, many life insurance companies invest both in whole loans for which they hold the mortgage note (and which appear in this data under Life Insurance Companies) and in CMBS, CDOs and other ABS for which the security issuers and trustees hold the note (and which appear here under CMBS, CDO and other ABS issues).
Commercial banks continue to hold the largest share of commercial/multifamily mortgages, $1.2 trillion, or 40 percent of the total. Agency and GSE portfolios and MBS are the second-largest holders of commercial/multifamily mortgages, holding $521 billion, or 18 percent. CMBS, CDO and other ABS issues hold $459 billion, or 16 percent; and life insurance companies hold $420 billion, or 14 percent. Many life insurance companies, banks and the GSEs purchase and hold CMBS, CDO and other ABS issues. These loans appear in the “CMBS, CDO and other ABS” category.
“Commercial and multifamily mortgage debt outstanding grew roughly in line with property values in 2016,” said MBA Vice President of Commercial Real Estate Research Jamie Woodwell. “With property values up 8 percent, the amount of mortgage debt outstanding grew 6 percent. Looking just at multifamily properties, an 11 percent increase in property values was met with a 10 percent increase in mortgage debt.”
Woodwell said after years of property prices outpacing mortgage debt growth, MBA expects the two to move in concert going forward. “During the recession, property prices declined by roughly 40%,” he said. “Because debt is ‘stickier’ and outstanding loan balances don’t automatically adjust to changes in prices, mortgage debt outstanding remained stable. In the years since, prices bounced back and now exceed their pre-recession levels, while mortgage debt outstanding–which hadn’t declined–rose at a much slower pace. The ratio between the two is now back to where it was before the recession.”
The four major investor groups are: bank and thrift; commercial mortgage backed securities, collateralized debt obligation and other asset-backed securities issues; federal agency and government-sponsored enterprise portfolios and mortgage-backed securities; and life insurance companies.
Multifamily Mortgage Debt Outstanding
Looking solely at multifamily mortgages, agency and GSE portfolios and MBS hold the largest share, with $521 billion, or 46 percent of the total. They are followed by banks and thrifts with $383 billion, or 34 percent. State and local government hold $92 billion, or 8 percent; life insurance companies hold $66 billion, or 6 percent; CMBS, CDO and other ABS issues hold $47 billion, or 4 percent; and nonfarm non-corporate business holds $13 billion, or 1 percent of the total.
Changes in Commercial/Multifamily Mortgage Debt Outstanding
Banks and thrifts saw the largest increase in dollar terms in their holdings of commercial/multifamily mortgage debt in the fourth quarter, an increase of $26.8 billion, or 2.3 percent. Agency and GSE portfolios and MBS increased their holdings by $21.3 billion, or 4.3 percent; and life insurance companies increased their holdings by $6.5 billion, or 1.6 percent. CMBS, CDO and other ABS issues saw the largest decrease at $8.4 billion, or down 1.8 percent.
In percentage terms, other insurance companies saw the largest increase in their holdings of commercial/multifamily mortgages, an increase of 6.5 percent. Real estate investment trusts saw their holdings decrease by 4.8 percent.
Changes in Multifamily Mortgage Debt Outstanding
The $27.3 billion increase in multifamily mortgage debt outstanding between the third and fourth quarters represents a 2.4 percent increase. In dollar terms, agency and GSE portfolios and MBS saw the largest increase in their holdings of multifamily mortgage debt, an increase of $21.3 billion, or 4.3 percent. Commercial banks increased their holdings of multifamily mortgage debt by $8.5 billion, or 2.3 percent. Life insurance companies increased by $953 million, or 1.5 percent. CMBS, CDO and other ABS issues saw the largest decline in their holdings of multifamily mortgage debt, by $4.1 billion, or down 8.0 percent.
In percentage terms, REITs recorded the largest increase in holdings of multifamily mortgages, at 5.2 percent. CMBS, CDO and other ABS issues saw the biggest decrease at 8.0 percent.
Changes in Commercial/Multifamily Mortgage Debt Outstanding in 2016
In 2016, commercial banks and thrifts saw the largest increase in dollar terms in their holdings of commercial/multifamily mortgage debt, an increase of $115 billion, or 11 percent. CMBS, CDO and other ABS issues decreased their holdings of commercial/multifamily mortgages by $56.5 billion, or 11 percent.
In percentage terms, other insurance companies saw the largest increase in their holdings of commercial/multifamily mortgages, an increase of 28 percent. State and local government retirement funds saw the largest decrease, at 30 percent.
Changes in Multifamily Mortgage Debt Outstanding During 2016
The $99.6 billion increase in multifamily mortgage debt outstanding during 2016 represents a 9.6 percent increase. In dollar terms, Agency and GSE portfolios and MBS saw the largest increase in their holdings of multifamily mortgage debt, an increase of $67.6 billion, or 15 percent. CMBS, CDO and other ABS issues saw a decrease of $14.7 billion in their holdings, or 24 percent.
In percentage terms, REITs recorded the largest increase in their holdings of multifamily mortgages, 19 percent, while state and local government retirement funds saw the largest decrease, 34 percent.
The complete Commercial/Multifamily Mortgage Debt Outstanding report can be downloaded at www.mba.org/documents/research/4Q16MortgageDebtOutstanding.pdf. The analysis is based on data from the Federal Reserve Board’s Financial Accounts of the United States, the Federal Deposit Insurance Corp.’s Quarterly Banking Profile and data from Wells Fargo Securities. More information on this data series is contained in Appendix A.
