In May, the Washington, D.C.-based Mortgage Bankers Association announced that commercial and multifamily loan originations hit a record $507.7 billion in 2007. One month later, the MBA said originations were at their lowest level since 2004. Meanwhile, multifamily originations were down 27 percent for the first quarter of this year versus 2007. What gives?

Jamie Woodwell, MBA senior director of commercial/multifamily research, says disparity in the reports reveals the impact of the credit crunch and a return to normalcy from extraordinary origination volume over the past three years. “There are a lot of different things going on in the market,” Woodwell says. “First-quarter CMBS originations were the lowest we have seen since 2001. Originations for banks fell to 2004 levels, while agency originations have hit record highs.” Indeed, Fannie Mae and Freddie Mac predictably stepped in as banks and institutional lenders sat on the sidelines licking subprime wounds.

“Banks and portfolio lenders have pulled back,” says NMHC co-founder Bob Sheridan, now a principal at River Forest, Ill.-based multifamily development firm Robert Sheridan and Partners. “Banks don't have the stomach for lending, and they are capital-impaired—they've lost over $300 billion to subprime, and that might be only a third of what's to come.”

Nevertheless, multifamily mortgage originations have undeniably plummeted. Now, sellers are asking for 2007 prices that don't pencil out, while new underwriting realities require buyers to pour immense amounts of equity into purchases. “Sellers are lowering expectations, but not enough to meet the constraints of the debt underwriting,” says Matt McManus, chairman of Philadelphia-based Blue-Stone Real Estate Capital. “It all computes to dislocation between buyer and seller, and therefore activity is low. I think that gap will fritter away by the end of the year.”