MBA's forecast paints a positive picture for commercial and multifamily lending
The Mortgage Bankers Association (MBA) has some optimistic news for the commercial and multifamily mortgage sector.
After what looks to have been a slow year in 2023, it is forecasting total commercial and multifamily originations to jump to $576 billion in 2024 – up 29% from this year’s estimated $444 billion.
This rebound is expected to span across the sector, with multifamily lending alone projected to reach $339 billion, a 25% increase from the previous year. MBA expects overall borrowing and lending to grow to $717 billion in 2025, with $404 billion of that total in multifamily lending.
“2023 is likely to go into the record books as the slowest year for commercial real estate borrowing and lending in roughly a decade,” said Jamie Woodwell, head of commercial real estate research at MBA. “As the markets reset – on interest rates, property values, some property fundamentals and other factors – those volumes should pick up marginally. While up from last year’s levels, we still expect borrowing and lending in 2024 to be below what was seen in 2017.
“Commercial mortgage originations have historically followed property prices, and the uncertainty about the future path of interest rates has contributed to the current slowdown. If interest and cap rates were to fall, that should help boost values and promote borrowing. If they remain higher for longer, that will suppress activity. This uncertainty is a contributing factor in today’s slowdown.”
Read more: Predicting the future for commercial real estate
Commercial real estate has faced its share of challenges, particularly in the latter part of 2023. Delinquency rates for loans backed by commercial real estate climbed in the final quarter, with office property loans climbing to 6.5% and lodging-backed loans to 6.1%.
Despite these hurdles, multifamily and industrial property loans saw only marginal increases in delinquencies, maintaining relatively low rates overall.
“One gets a view into the ways lenders have been addressing these issues through banks’ Q4 earnings releases—and the focus is clearly on office loans and provisioning for loan challenges that have not yet shown up,” Woodwell wrote in a blog post. “Many of the early reporting banks showed low (or even non-existent) delinquency rates for their office loans.”
However, a more in-depth review of portfolios revealed a higher percentage of office loan balances being classified as non-performing, indicating that full repayment of principal or interest might not be expected.
A significant portion of these loans were marked as “criticized” (meaning the loan needs close management attention), according to the MBA.
“Anticipating that office market challenges will work their way through the system, many banks have already reserved an amount equal to 8-10% of their office loan balances to cover any future office loan losses,” Woodwell said.
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