MBA Research: Commercial and Multifamily Mortgage Financing Sources
New Mortgage Bankers Association research examines key commercial and multifamily mortgage financing sources and the issues that will shape lending.
“A number of market and regulatory factors are impacting the commercial and multifamily real estate finance markets,” said MBA Vice President of Commercial Real Estate Research Jamie Woodwell. “As just one example, in the past month, several Wall Street analysts have reduced their expectations for 2016 commercial mortgage-backed securities issuance by 25 to 30 percent.”
Woodwell said the MBA Research Datanote, Sources of Commercial and Multifamily Mortgage Financing in 2016, examines major commercial real estate lending sources and the market and regulatory changes that could affect their lending appetite in the coming months.
Findings include:
Office buildings, apartment buildings, shopping malls, warehouse facilities and other income-producing commercial real estate assets are supported by nearly $3 trillion in mortgages. The availability of this financing fosters investment, distributes investment risk and return and reduces the cost of building and maintaining properties, thus reducing end-user costs.
The nearly $3 trillion commercial real estate finance industry draws capital from a variety of sources including bank balance sheets, securitization markets, government-sponsored enterprises and life insurance company investment portfolios. These assorted sources bring competition, a diversity of appetites and a variety of options to the market. But they also bring a variety of potential market and regulatory challenges.
Commercial and multifamily mortgage borrowing and lending have been strong in recent years, with nearly $500 billion in mortgage bankers originations last year, which brought commercial and multifamily mortgage debt outstanding to $2.8 trillion.
Commercial real estate finance markets are large and diverse. Banks’ balance sheets are the largest and fastest-growing source of commercial real estate mortgage financing. The CMBS market, at roughly half the size of the banks and shrinking, is the second-largest source of CRE debt, followed by Fannie Mae, Freddie Mac and FHA–which focus on multifamily and health care properties–and by life insurance companies.
Banks have been very active in commercial and multifamily real estate finance in recent years. But recent regulatory actions could moderate some activity, which could limit the availability of mortgage debt from depositories in coming years.
A series of market and regulatory changes limited CMBS market liquidity in recent quarters. Coupled with upcoming reductions in CMBS outstanding balance and regulations that will fundamentally change elements of the market infrastructure, CMBS mortgage debt availability could face significant pressure.
The GSEs and FHA have been a key source of mortgage debt for the multifamily and health care markets in recent years, and the markets grew increasingly reliant on them. Regulators are actively managing these entities’ roles and shares in the market, which will determine the availability of mortgage debt that Fannie Mae, Freddie Mac and FHA provide going forward.
Life insurance companies remain a steady source of mortgage debt. Absent significant market or regulatory changes, they will likely remain a reliable source of mortgage debt for commercial and multifamily properties.
Commercial real estate finance markets have been experiencing very strong conditions, with financing readily available across a range of capital sources. But market and regulatory challenges could limit some of that financing, with probable spillover to different parts of the market. Concerns about future liquidity and where the market goes from here are palpable within the industry.
The full Datanote is available at https://www.mba.org/Documents/Research/16047_Research_CMF_Financing_DataNote.pdf
