MBA Forecast: Commercial/Multifamily Originations to Hold Firm in 2019

Adam Desanctis adesanctis@mba.org; Michael Tucker mtucker@mba.org

February 11, 2019


SAN DIEGO--Steady commercial real estate markets, along with equity and debt availability, are expected to keep commercial and multifamily mortgage originations roughly on par with the volumes seen the past two years, according to the Mortgage Bankers Association's 2019 Commercial/Multifamily Real Estate Finance Forecast, released here today at the 2019 Commercial Real Estate Finance/Multifamily Housing Convention & Expo.

JamieWoodwellMBA projects commercial and multifamily mortgage originations to total $530 billion in 2019, essentially flat from last year's volume of $526 billion and the record $530 billion in 2017. Mortgage banker originations of just multifamily mortgages are forecast to rise by 1 percent this year to $264 billion, with total multifamily lending at $315 billion. MBA expects these originations totals to continue through 2020.

"We expect commercial mortgage borrowing and lending to remain near current levels in coming years," said MBA Vice President for Commercial Real Estate Research Jamie Woodwell. "Slowing global and domestic growth may have an impact on overall demand, but ready availability of equity and debt for commercial real estate should support transaction volumes. Moderation in property value growth and sustained NOI increases will likely extend the recent plateauing in transaction activity."

MBA said commercial/multifamily mortgage debt outstanding is expected to continue to grow in 2019, ending the year up 5 percent from 2018.

"Investors continue to love commercial real estate," Woodwell said. "They are willing to take lower returns as reported by cap rates, which are generally at record lows. Apartment cap rates are down there with central business district offices. Other sectors are not at record lows in terms of cap rates."

Woodwell noted apartment construction is steady. "There are 600, 000 new units under construction right now, something not seen since the mid-1970s," he said. "So there is a great balance between supply and demand."

Woodwell also noted a push toward commercial real estate more and more as a service and less about square footage. "The big changes in storefronts are in services, not goods; that's where prices are changing," he said. "There is deflation on goods but inflation on the services side."

Despite a noticeable drop in retail, "We're seeing vacancy rates hold pretty steady," Woodwell said. "There's been a slight ticking up of vacancy rates. If you include industrial, then vacancy rates tick down a bit, but if you look at asking rents, you'll see continued growth."

Looking ahead, Woodwell said MBA is closely monitoring cap rates. "Generally, there's always been a thought that as Treasury rates move up we would see cap rates increase as well," he said. "But it's interesting; the reverse is often true. Often when interest rates are rising it's because of a bullish time for the economy. These things induce more people to invest in commercial real estate, which pushes cap rates down. Cap rates are decreasing and return on investment is increasing and both are pushing values up."

Woodwell said MBA expects CRE delinquencies to remain low. "Freddie Mac has just a 0.01 percent delinquency rate; that's exceptionally low," he said. "Banks and thrifts have the lowest delinquency rates they've ever had. Commercial mortgage-backed securities are not at the lowest point, but the CMBS delinquency rate is calculated differently. If they are looked at the same way as other delinquency rates, then CMBS rates have been tracking bank delinquency rates all along."

MBA's commercial/multifamily members can download a copy of MBA's Commercial/Multifamily Real Estate Finance Forecast at www.mba.org/crefresearch.

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