MBA Finds Decreased Originations, Predicts Future Changes

Commercial/multi-family mortgage originations ended last year down, thanks largely to the credit crunch, the Mortgage Bankers Association announced on Monday at the annual Commercial Real Estate Finance/Multi-family Housing Convention & Expo. And while solid fundamentals provide promise for the future, when the economy does return, certain aspects of the real estate financing business will be different, according to a presentation by MBA senior vice president & chief economist for research and business development Douglas Duncan (pictured) and senior director of commercial/multi-family research Jamie Woodwell. “Location, location, location (will be) mattering again,” noted Woodwell, while Duncan said the major issue to be determined is what information will be required for investors to be comfortable with return expectations. They said the commercial debt obligation market will return, but with more scrutiny and the role of rating agencies and structuring still to be determined. Recovery is still a ways away, they added. Duncan predicted that the single-family market will not turn around before at least the third quarter, with the upturn a long “U” shape. And with prices still in decline, the wealth effect is reversing itself, he said, which may impact the commercial markets as well. Overall, economic growth will remain weak through at least the first half of the year, he added, with high energy prices, a weak dollar and slowing employment all also contributors. Fourth quarter commercial and multi-family originations were down overall by 16 percent in the fourth quarter of 2007 over the fourth quarter of 2006. That was reflected across most property types. Specifically, office property loans decreased by 73 percent, industrial properties by 50 percent, retail by 38 percent, multi-family by 7 percent, hotel by 349 percent (with several large portfolio sales taking place in the fourth quarter) and health-care by 3 percent. Much of the negative performance took place in the second half of the year, with an 11 percent drop in second half 2007 over second half 2006 and a 38 percent increase in the first half over the same period the year before. At the same time, originations increased by 11 percent in the fourth quarter over the third quarter, with increases in multi-family and hotels and retail remaining stable. Woodwell pointed to “exceptional” levels of REIT privatization and major portfolio sales influencing the numbers. CMBS conduits decreased their volume by 31 percent in the fourth quarter over the fourth quarter of 2006 (although a 73 percent increase over third quarter 2007), life insurance companies decreased by 15 percent (but a 27 percent decrease between the third and fourth quarters) and commercial banks by 6 percent (although an increase of 17 percent from the third to the fourth quarters), while the government-sponsored enterprises increased their volume by 41 percent (and by 7 percent from the third to the fourth quarter). Despite the year-end volume decreases, “the main message (is that) the fundamentals of all of the property markets are very solid, very sound,” affirmed Kieran Quinn, chairman of the MBA and of Column Financial Inc. The “last guy that bought” will suffer some loss of property value, he said, “but there is very little of that happening.” And while certain states that experienced tremendous population growth—specifically California, Florida, Nevada and Arizona—and while the capital markets are being repriced, repricing will simply cause people to mark to market, he added. For more coverage of this conference by our sister publication Multi-Housing News please go toMulti-Housing News or click on the stories below:SPECIAL REPORT: Mortgage Bankers Conference’s Opening Session Places Positive Spin on Credit Turmoil Commercial/Multifamily Loan Originations Down in Q4, Says MBA Report