Commercial and Multifamily Originations Set a Record by Rising to New Levels

In 2018 Multifamily and Commercial mortgage bankers closed a record $573.9 billion of loans, as stated by MBA’s 2018 Commercial Real Estate/Multifamily Finance Annual Origination Volume Summation.

And all of these factors below combined led to an eight percent increase in recorded Multifamily Lending compared to last year.

  • Growing property values
  • Low interest rates
  • Solid fundamentals
  • Strong appetites from both lenders and borrowers

Let’s Break Down the Numbers

  1. Commercial Bank portfolios led the capital source with responsibility of $174 billion loans.
  2. Then GSEs, Government Sponsored Enterprises; Freddie Mac and Fannie Mae witnessed the second highest amount of $142.3 billion.
  3. Followed by Life Insurance companies and pension funds, Commercial Mortgage-Backed Securities (CMBS) issuers, investment funds, Real Estate Investment Trust (REITS), and mortgage REITS.

In terms of Property Types…

  • Multifamily Properties at $266.4 billion had the highest of mortgage bankers’ origination volume.
  • Followed by retail properties, industrial, health care, office buildings, and hotel/motel.

First liens accounted for 96 percent of the total dollar volume closed. The reported dollar volume of commercial and multifamily mortgages closed last year was eight percent higher than the volume reported in 2017. Among repeat participants in the survey, the dollar volume of closed loans increased by four percent.”

Jamie Woodwell Vice President, Mortgage Bankers Association

With loan originations on the rise, the need for site assessments has never been more important. UES Consulting and our team of inspectors are well-versed in the demands of commercial and multi-family transactions and how thorough, time-sensitive Phase I Environmental Site Assessments and Property Condition Assessments can help the process run smoothly and close on time. If you are looking for a company to partner with on your Commercial Real Estate transactions of any kind, turn to our in-house engineers and environmental consultants to alleviate the burden of environmental issues and mitigate risks. 

 

Information by MBA, Click here to purchase the complete report.

What’s Next with Commercial Real Estate?

Commercial Real Estate has never been in a better spot but you have to ask the question, what’s coming next?

MBA Vice President of Commercial Real Estate Research Jamie Woodwell expressed his opinion for the sector at the MBA Commercial/Multifamily Servicing & Technology Conference.

“We’re currently in the longest economic expansion ever,” Woodwell said. “There have been a couple negative quarters here and there, but not two in a row, which is the definition of a recession. So there’s been an incredibly long run of economic expansion.

Woodwell quoted multiple record-setting metrics: Commercial property cap rates are at record lows; MBA accounted a record $574 billion in multifamily and commercial mortgage bankers originations last year; plus loan delinquency rates are at or near record lows.

So, there are a lot of phenomena going on, putting us in a place we’ve never seen before,” Woodwell said. “Thus, the question becomes what’s next?

That answer is dependent on your outlook on life.

People on the optimistic spectrum may say they don’t see anything likely to change the current thriving situation. While others may say, “it’s been a great run, so I’m going to get ready for what comes next,” Woodwell said.UES Consulting Services, Phase 1 Environmental Site Assessments, Phase I Environmental Site Assessments, Phase 1 Environmental Site Assessments KC, Phase 1 Environmental Site Assessments Midwest, Phase 1 Environmental Site Assessments US, Phase I Environmental Site Assessments KC, Phase I Environmental Site Assessments Midwest, Phase I Environmental Site Assessments US, Phase I ESA, Phase I ESAs, Phase I ESAs KC, Phase I ESAs Midwest, Phase I ESAs US, Phase 1 ESAs, Phase 1 ESAs KC, Phase 1 ESAs Midwest, Phase 1 ESAs US, leader in environmental consulting and engineering services, engineering services Kansas City, environmental consulting Kansas City, Phase I Environmental Consulting, Phase 1 Environmental Consulting, Phase I Environmental Consulting Kansas City, Phase 1 Environmental Consulting Kansas City, Phase II Environmental Consulting, Phase 2 Environmental Consulting, Phase II Environmental Consulting Kansas City, Phase 2 Environmental Consulting Kansas City

So let’s get into the details…

Woodwell used the first quarter’s 3.2% real GDP growth rate to back the current strength of the U.S. economy. Unemployment rate dropped to its lowest point in 50 years and job growth has averaged above 200,000 per month thus far in 2019. “That’s boosted wages, which economists had expected would happen well before now,” said Woodwell.

On the other end, our economies great performance could guide some inflation pressure. “But that has not yet materialized,” Woodwell said. “Some think trade tariffs could start to bring more inflation on.”

With this economic situation, each commercial property type has a unique story to tell…

Multifamily sector: Moving fast in terms of both supply and demand for apartments. The younger generation is filling the shoes of their parents, which supports high demand for multifamily properties. The main surge is in Millennials since they’re beginning to demand apartments and form households; mainly high-quality urban newly developed apartments.

Office sector: Shows a long steady run of positive job growth, but on the flip side, companies are using a smaller space per employee; which leads to the recent fairly stable market. Nevertheless, wage pressure increases while employers struggle to keep their top employees in the middle of an extended strong job market.

One tool employers could use would be to reverse the recent trend of shrinking office space and increase the room given to employees in an effort to compete for talent,” he said.

Retail sector: Definitely has witnessed the largest changes, mostly due to E-commerce, which has taken over almost 10% of all retail sales and persists to grow 3 basis points each quarter.

“But consumer consumption is strong enough that both E-commerce and brick-and-mortar stores can grow–as long as consumer spending continues, Woodwell said. “But if consumer spending should slip, which will lose more?,” he asked.

Industrial Sector: Has experienced positive evolving changes that have rarely been seen in the past such as new warehouse properties with a second or third story. With manufacturing shipments and E-commerce growing at record highs, the industrial sector continues to thrive–and evolve.

In conclusion…

When I think about what’s likely to happen, I come back to the idea of a plateau,” Woodwell said. “Coming off a record year of originations, I don’t see much pulling those numbers down, and I also don’t see much pushing those numbers much higher, so we generally see a plateau for originations for the next few years. If we continue to run at this level, that still means growth in mortgage debt outstanding because of maturities, and that means there will likely be more need for servicers like you to service these loans.”

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Commercial and Multifamily Originations Set a Record by Rising to New Levels

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Commercial and Multifamily Originations rose to new levels in 2018 with a record amount of loans resulting in $573.9 billion loans. Learn how this happened, what factors such as growing property values, low interest rates, solid fundamentals, and strong appetites from lenders and borrowers led to this record. We break down the numbers and find out Commercial Bank portfolios led the capital source then GSEs, Government Sponsored Enterprises, Freddie Mac and Fannie Mae then Life Insurance Companies and pension funds, Commercial Mortgage-Backed Securities issuers, investment funds, REITs and mortgage REITS. Multifamily properties had the highest mortgage bankers' origination volume followed by retail properties, industrial, health care, office buildings, and hotel/motel

Multifamily Housing Market in 2019

Checkout a summary of 2019 trends in Multifamily Housing Markets…

In Freddie Mac’s Multifamily research, they found that “performance in the multifamily market remained healthy during 2018, despite high levels of new supply entering the market. We expect this trend to continue into 2019, but with more modest growth in comparison to recent years.”

2018 ended up with solid rent growth and only modest increases in vacancy rates despite an elevated level of new supply. There are some weakness’s in individual markets and submarkets.

New supply will remain elevated through 2019 and into 2020 but rents and vacancies will continue outperforming historical averages due to robust demand related to the rising cost of homeownership, changing demographics and consumer preferences.”

Cap rates have slightly fallen over the past couple quarters but they expect cap rates to rise in 2019 if Treasury rates increase.

“Multifamily origination volume is projected to grow to $317 billion in 2019 driven by solid market fundamentals and strong investor demand for multifamily properties.” This figure exceeds 2018’s statistic by 3.9 percent.In conclusion, “we expect 2019 to be another strong year for the multifamily industry. Homeownership affordability constraints and consumer trends will continue to drive demand, while strong rent growth will support property price growth.”

For full analysis click here.

Commercial Real Estate Industry Booming