Q3 Recap: Commercial/Multifamily Borrowing

Q3 Recap CommercialMultifamily Borrowing

Share This Post:

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.

Questions about this article? Reach out to our team below.

Making Your Advertising Compliant

Private Lenders utilize advertising for their services every day, whether through websites, emails, texts, business cards, social media, or telephone solicitations. Successful advertising makes people remember