The decline in originations of commercial and multifamily loans, sparked by COVID-19, continued in the third quarter of 2020 as the pandemic continued in the U.S.
During the three months ending September 30 commercial and multifamily mortgage loan originations were down 47% compared to the same period last year, according to a report from the Mortgage Bankers Association.
Key Takeaways from Q3
Hotel, retail, office, and health care properties experienced a dramatic decline in volume.
While commercial/multifamily lending volumes declined across all property types year-over-year, loans secured by hotels and retail properties showed the most dramatic drops in volume as these industries continue to suffer in a socially distant world. In the third quarter, the dollar volume of loans for hotel properties took a 94% nosedive compared to the same period last year, while the dollar volume of loans for retail properties fell 83% year-over-year. As companies and employees continue to embrace remote work environments, office properties saw a 58% decline in lending volume. Loans secured by health care properties experienced a 51% decline, evidencing financial strain on health care providers under the pandemic. Industrial properties saw a relatively less severe decline (23%).
Multifamily, office, and health care properties experienced a boost in loan originations.
Despite poor year-over-year performance in Q3, borrowing picked up a bit compared to last quarter. Commercial/multifamily mortgage loan originations enjoyed a 12% uptick compared to Q2, providing a flicker of hope for recovery in the real estate lending market. Originations increased most for industrial properties, growing 67% compared to the three months ending June 30. Other property types that saw significant growth in originations over the second quarter include office properties (35%) and health care (32%). Loan originations for retail properties and hotel properties declined in the third quarter, by 27% and 45% respectively, underscoring the struggle for the hospitality industry.
Multifamily properties held strong.
Multifamily properties continue to withstand volatility better than the other property types, as demonstrated by the relative year-over-year and quarter-over-quarter stability. Multifamily property lending volume is down 31% in the third quarter of 2020 compared to last year, while dollar volume for multifamily property loans grew just 4% compared to Q2 2020.
GSE loans weathered the storm.
Loans from government-sponsored enterprises, like Fannie Mae and Freddie Mac, experienced the smallest year-over-year decrease in dollar volume. At just 8 percent, GSE loans have weathered the uncertainty better than commercial bank portfolio loans, for which lending volume fell 68% year-over-year; Commercial Mortgage-Backed Securities, which declined 58% year-over-year; and life insurance company loans, which declined 55%.
The CMBS market rebounded.
After taking a hard hit in the beginning of the pandemic, dollar volume for CMBS skyrocketed 749% in the third quarter compared to the second quarter. This gain was huge compared to other investor types. Loans for GSEs grew just 3%, while those for life insurance companies and commercial bank portfolios declined compared to Q2.
