A report from the Mortgage Bankers’ Association (MBA) says that multifamily mortgage originations in Q4 2023 were down 27 percent year-over-year despite rising 13 percent from their level in Q3. Originations of all commercial mortgages as a single asset class fell 25 percent year-over-year.
Commercial mortgage originations declining year-over-year
The first chart, below, shows the MBA’s quarterly origination volume indexes since Q1 2018 for both all commercial mortgages as a single asset class and for multifamily mortgages. The indexes are reported relative to the year 2001, with the average quarterly volume in that year defined as a value of 100.
The usual pattern of mortgage origination volume is seen in years 2018, 2019 and 2021 in the chart. The pattern has origination volume increasing quarter-by-quarter through the year with Q1 mortgage origination volume declining from the level in Q4 of the previous year. However, both 2022 and 2023 deviated from that pattern as rising interest rates and tightening lending standards suppressed originations.
While multifamily mortgage originations were up in Q4 from Q3, they were at their lowest level for any fourth quarter since at least 2015. This was also true for overall commercial mortgage originations.
Results varied for the six property categories mentioned in the report (multifamily, office, retail, industrial, hotel and health care). Mortgage originations for retail and for hotel properties were sharply higher. Retail mortgage originations rose 91 percent quarter-over-quarter and 50 percent year-over-year while hotel originations rose 131 percent quarter-over-quarter and 81 percent year-over-year.
Mortgage originations for heath care properties were mixed, rising 72 percent quarter-over-quarter but falling 39 percent year-over-year. Industrial property originations fell 11 percent quarter-over-quarter and 7 percent year-over-year. The already depressed rate of mortgage origination for office property continued to slide, with originations falling 32 percent quarter-over-quarter and 68 percent year-over-year.
Who’s lending
The MBA report also includes data on the sources of the commercial mortgages being originated. However, this section of the report does not break out multifamily mortgages from lending on other types of commercial real estate.
The report provides data on five categories of lenders: commercial mortgage-backed securities (CMBS) and conduits, depositories (aka commercial banks and savings and loans), life insurance companies, the government sponsored entities (GSEs), Fannie Mae and Freddie Mac, and investor-driven lenders such as REITs and specialty finance companies. The index values are quoted relative to the average quarterly origination volumes in the year 2001. The index values of different originators cannot be used to compare their absolute levels of mortgage originations since their origination levels in the baseline year of 2001 were different.
To gain insight into the absolute levels of funding provided by the different classes of originators, readers should look to the MBA’s report on mortgage debt outstanding. However, the origination index values can be compared to see which classes of originators are growing their business and which are not.
The final chart shows the history of the commercial mortgage origination volume indexes since Q1 2018 by class of lender. It shows that commercial mortgage originations were relatively flat for all classes of lenders in 2023.
Compared to Q3, CMBS and conduits had the largest percentage rise in lending, although from a low level. CMBS originations rose 68 percent. Investor-driven lenders had the next biggest percentage gain, with originations rising 35 percent for the quarter.
The GSEs, who hold 48 percent of multifamily mortgages, saw their originations rise by only 1 percent compared to Q3. Depositories, who hold 30 percent of multifamily mortgages, increased their originations 17 percent quarter-over-quarter. Life insurers, who hold 11 percent of multifamily mortgages, lowered their originations by 7 percent compared to Q3.
Four of the five classes of lenders saw their commercial mortgage originations fall year-over-year. Issuance fell 6 percent for life insurers, 29 percent for GSEs, 1 percent for investor-driven lenders and 53 percent for depositaries. Issuance rose 144 percent year-over-year for CMBS and conduits.
The full report from the MBA includes additional information on lending for other commercial property types. It can be found here.
