CRE Loan Originations Expected to Fall By 40%

While the capital markets are moving again, loan activity has been significantly impacted by the pandemic. Commercial loan originations will likely fall by 40% this year compared to 2019 activity.

“Though the capital markets have certainly been disrupted by the COIVD-19 pandemic, there remains healthy activity and allocations from all major lending sources, albeit with lowered expectations for volume and a more conservative appetite for leverage and asset class,” J.D. Blashaw, VP at MetroGroup Realty Finance, tells GlobeSt.com. “According to the Mortgage Bankers Association, commercial and multifamily loan volumes are expected to decrease by 40% in 2020 compared to 2019 when originations topped $600 billion, a peak since the last global financial crisis.”

Now, lenders are focused on managing delinquencies and mitigating defaults of current loans. Multifamily, office and industrial loans are performing well and staying current. Blashaw says: According to the Mortgage Bankers Association, as of June 20th, loans that were current across asset classes were as follows:

Multifamily                98.1%

Office                          97.3%

Industrial                   98.3%

Retail                          85.3%

Hotel                           72.7%

Multifamily rent collections have been strong through the pandemic, which has helped to stave off delinquencies. The government stimulus has also played a role. “The National Multifamily Housing Council reported in June that 96% of renters made their payments, unchanged from a year earlier,” says Blashaw. “In this low interest rate environment, there will be ample capital and competition for quality multifamily and industrial properties, more selective for office and retail, and challenging for the hospitality sector until the market can find its footing.”

On the other hand, retail and hospitality are much more exposed to defaulting loans. “The data clearly shows the stress has been in the retail and hospitality sectors as expected, though those assets only made up collectively 13% of total originations in 2019,” says Blashaw. “After a sharp uptick in delinquencies in April and May in the hotel sector, delinquency rates leveled off in June as some leisure travel returned.”

With healthy rent collections in apartment, office and industrial assets and supportive government programs, lenders are getting comfortable with new loan originations. “During the first stage of the COVID-19 crisis, the CMBS market was completely frozen due to a lack of liquidity in the bond market,” says Blashaw. “As the various government stimulus programs began to filter broadly through the economy, including specific intervention by the Fed to expand TALF credit facilities to legacy CMBS, conduit lenders have eased back into the market with new issuance and more efficient pricing.”