Total commercial and multifamily borrowing and lending is expected to fall to $684 billion in 2023, a 15% decline from last year’s anticipated total of $804 billion, according to the Mortgage Bankers Association’s (MBA’s) updated baseline forecast at the 2023 Commercial/Multifamily Finance Convention and Expo. For multifamily lending this year, the MBA has revised its forecast to $384 billion, a 16% drop from last year’s expected total of $459 billion.
“MBA’s updated forecast is built on a base case of economic weakness at the start of 2023 with a moderation in interest rates and an overall improvement in the economy as the year goes on,” said Jamie Woodwell, head of commercial real estate research. “Given changes in interest rates and investment yields over the last year, new deals and loans are sizing differently than in previous years. These new changes will take time for buyers and sellers to digest, and we expect the logjam to suppress volumes this year.”
Woodwell added, “We expect loan maturities and outstanding adjustable-rate loans to lead the testing of today’s market conditions. For long-term loans, the last decade has seen tremendous growth in property income and values—both of which will support properties’ abilities to support new loans. Properties with interest rate resets and shorter-term loans that transacted or refinanced more recently will be much more dependent on the particulars of that loan and property.”
Looking ahead to 2024, the MBA anticipates that commercial real estate lending will rebound to $906 billion, with multifamily lending comprising over half of that total—$486 billion.
The revised 2023 forecast comes at the same time that the MBA released fourth quarter originations data. Commercial and multifamily mortgage originations in the final quarter of the year were 54% lower year over year.
When compared with the fourth quarter of 2021, decreases in originations for industrial, office, multifamily, and retail led the overall drop. Industrial experienced a 69% year-over-year drop in the dollar volume of loans, while multifamily properties experienced a 52% decrease.
On a quarterly basis, hotel property originations dropped 39% compared with the third quarter, while multifamily saw a 23% decline in originations.
“Borrowing and lending backed by commercial and multifamily properties slipped further to close out 2022,” said Woodwell. “The last quarter of the year typically sees the highest volumes, but the chill caused by rising interest rates, questions about property valuations, and increased economic uncertainty made the fourth quarter of 2022 the weakest of the year.”
Among investor types, according to the MBA, the dollar volume of loans originated for commercial-backed securities dropped 92% year over year. In addition, a 60% decline was seen for investor-driven lenders, a 53% decrease in life insurance company loans, a 47% decrease for depositories, and a 13% drop in the dollar volume of government-sponsored enterprises Fannie Mae and Freddie Mac loans.
“Depositories were the one major capital source to increase volumes from the previous year, but even its fourth quarter activity was roughly half of what it was a year earlier. The overall picture is one of slower borrowing in the face of what have been significant shifts in the market.”
