Appetite for CRE Mortgages Picked Up in Q3

Every major investor group increased their holdings of commercial and multifamily mortgages in the third quarter, according to the Mortgage Bankers Association.

The level of commercial/multifamily mortgage debt outstanding increased by $64.8 billion (1.6%) in the quarter as multifamily mortgage debt alone increased $26.6 billion (1.5%) to $1.8 trillion.

The strength is likely to continue, predicts Jamie Woodwell, MBA’s Vice President of Commercial Real Estate Research. “Many property types have healed considerably since the shutdowns at the onset of the COVID-19 pandemic in early 2020…. “Strong interest from both borrowers and lenders is likely to continue to drive increases in commercial and multifamily mortgage debt in 2022,” he said in prepared remarks.

Leading the way are banks and thrifts, followed by federal agency and government sponsored enterprise portfolios and mortgage-backed securities, life insurance companies and commercial mortgage-backed securities, collateralized debt obligations and other asset-backed securities issues.

Overall, commercial banks continue to hold the largest share (38%) of commercial/multifamily mortgages at $1.5 trillion, according to the quarterly report.

Agency and GSE portfolios and MBS come in at number two (22%) at $885 billion followed by life insurance companies with $609 billion (15%), with CMBS, CDO and other ABS issues holding $564 billion (14%).

MBA is reporting that commercial banks saw the largest gains in dollar terms in their holdings of commercial/multifamily mortgage debt—an increase of $20.9 billion, (1.4%). At the same time, agency and GSE portfolios and MBS increased their holdings by $14.1 billion (1.6%), life insurance companies increased their holdings by $12.9 billion (2.2%), and REITs increased their holdings by $7.8 billion (7.7%). 

In multifamily mortgage debt holdings, agency and GSE portfolios and MBS saw the largest gain—$14.1 billion (1.6%) with commercial banks raising holdings by $5.6 billion (1.1%), and life insurance companies up by $3.8 billion (2.2%). 

Among smaller holders of multifamily mortgage debt, REITs’ increase was up $649 million (9.5%) while private pension funds had a decline of $65 million (14.3%).

MBA delivered more good news for the industry a few months ago when it reported that delinquency rates for mortgages backed by commercial and multifamily properties have improved with the recovery. 

However, Woodwell cautioned that the improvement is not everywhere and to the same degree. “Performance is still property-type dependent, with the properties that saw the most immediate and dramatic impacts from the pandemic—lodging and retail—still experiencing considerably more stress than others but showing improvement. Delinquency rates are down significantly for those property types and remain muted for others.”