Commercial and multifamily mortgage debt continues to grow in the second quarter of 2020, even as originations plunge.
Commercial and multifamily mortgage debt climbed 1.2 percent, reaching $3.76 trillion, in the three months ending June 30, according to a report from the Mortgage Bankers Association. Growth in mortgage debt outstanding continued along recent trend lines even as mortgage originations dropped amid the COVID-19 pandemic.
COVID-19 and the associated economic slowdown have had an uneven effect on real estate properties and capital, according to MBA. Based on second quarter data, commercial properties suffered the greatest blow, while multifamily properties have buoyed the sector, at least in the short-term.
What do private lenders need to know?
- Multifamily mortgage debt growth outpaced other property types in the second quarter of 2020. This comes as no surprise as multifamily properties have been documented to withstand economic volatility better than other classes of real estate, especially in the short-term. In Q2, the U.S. was only just beginning to feel the full impacts of the coronavirus pandemic. During this period, MBA’s report shows multifamily mortgage debt grew 2 percent, reaching $1.6 trillion. It accounted for nearly 75 percent of overall debt growth. This relatively steep growth is subject to change as the country continues to grapple with the long-term effects of economic slowdown, and people begin to downsize or change their living situations as a result.
- Federal agencies and government-sponsored enterprise portfolios like Fannie Mae and Freddie Mac snagged a significant portion of the market in Q2, continuing to amplify the presence of these types of lenders in the market. Agency and GSE portfolios and mortgage-backed securities held $775 billion in total outstanding multifamily debt, representing 48 percent of the market, and growing 3.1 percent ($22.9 billion) in the second quarter alone. Other major investor groups in this real estate class grew less than half that in the second quarter. For example, banks and thrifts, which hold 30 percent of multifamily debt outstanding grew just 1.1 percent.
- Meanwhile, smaller players in the multifamily capital sector only shrank more in Q2. The federal government, finance companies, real estate investment trusts and private pension funds all experienced declines in their multifamily mortgage debt holdings. REITs plummeted 11.8 percent in Q2, the biggest decline of any sector.
- Overall commercial/multifamily mortgage data reinforces the performance of multifamily properties in the second quarter. For example, as multifamily mortgage debt outstanding increased $32.2 billion, combined commercial/multifamily mortgage debt rose $43.6 billion. Commercial banks still hold the largest share of commercial/multifamily mortgages (39 percent) but experienced just 1 percent growth in holdings.
Key Takeaway
MBA’s second quarter data confirms the resiliency of multifamily real estate in the short-term, even as mortgage originations have stalled. The second quarter of 2020 was also a quarter of marked growth for agency and GSE and MBS.
