MBA Releases Research Datanote on Sources of Commercial and Multifamily Mortgage Financing
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WASHINGTON, D.C. (March 8, 2016) - The Mortgage Bankers Association(MBA) today released a Research Datanote titled Sources of Commercial and Multifamily Mortgage Financing in 2016. The paper provides an overview of the market and of some of the key issues that will shape lending in the near term.
"A number of market and regulatory factors are impacting the commercial and multifamily real estate finance markets," said Jamie Woodwell, MBA's Vice President of Commercial Real Estate Research. "As just one example, in the past month, several Wall Street analysts have reduced their expectations for 2016 commercial mortgage-backed securities (CMBS) issuance by 25 to 30 percent. The paper looks at the major sources of commercial real estate lending and at some of the market and regulatory changes that could affect their appetites to lend over the coming year."
The Datanote highlights the following:
- Office buildings, apartment buildings, shopping malls, warehouse facilities and other income-producing commercial real estate in the United States are supported by nearly $3 trillion in mortgages. The availability of this financing fosters investment in the sector, distributes investment risk and return, and reduces the costs of building and maintaining properties - thus reducing end-user costs.
- The nearly $3 trillion commercial real estate finance industry draws capital from a variety of sources, including bank balance sheets, securitization markets, government sponsored enterprises, life insurance company investment portfolios and others. The assorted sources bring competition, a diversity of appetites and a meaningful variety of options to the market. Individually, they also bring a variety of potential market and regulatory challenges.
- Commercial and multifamily mortgage borrowing and lending have been strong in recent years, with nearly $500 billion in mortgage bankers originations in 2015, bringing commercial and multifamily mortgage debt outstanding to $2.8 trillion.
- Commercial real estate finance markets are both large and diverse. Banks' balance sheets are the largest - and fastest growing - source of commercial real estate (CRE) mortgage financing. The commercial mortgage-backed securities (CMBS) market, at roughly half the size of the banks and shrinking, is the second largest source of CRE debt, followed by Fannie Mae, Freddie Mac and FHA - which focus on multifamily and health care properties - and by life insurance companies.
- Banks have been very active in the commercial and multifamily real estate finance markets in recent years. Recent regulatory actions appear to be aimed at moderating some activity, which could limit the availability of mortgage debt from depositories in coming years.
- A series of market and regulatory changes have limited liquidity in the CMBS market in recent quarters. Coupled with upcoming reductions in the outstanding balance of CMBS and regulations that will fundamentally change elements of the market infrastructure, the availability of mortgage debt from the CMBS market could face significant pressure.
- The GSEs and FHA have been a key source of mortgage debt for the multifamily and health care markets in recent years, and the markets have become increasingly reliant on them. Regulators are actively managing the entities' roles and shares in the market, which will determine the availability of mortgage debt Fannie Mae, Freddie Mac and FHA provide going forward.
- Life insurance companies have remained a steady source of mortgage debt. Absent significant market or regulatory changes, they are likely to remain a reliable source of mortgage debt for commercial and multifamily properties.
- Commercial real estate finance markets have been experiencing very strong conditions, with financing readily available across a range of capital sources. As we enter 2016, market and regulatory challenges present the potential to limit some of that financing, with probable spill-over to different parts of the market. Concerns about future liquidity and where the market goes from here are palpable within the industry.
The full text of the MBA Research Datanote is available on MBA's website here.