Commercial RE Lending Fell Sharply in First Quarter, MBA Data Shows
MBA finds originations were less than half of those a year earlier, while a sample of NCUA data shows a smaller drop for CUs.
The Mortgage Bankers Association on Tuesday estimated that commercial real estate loan production in the first quarter plummeted, while NCUA data showed a more modest decrease for a sample of large credit unions.
The MBA’s Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations found first-quarter production was 56% lower than a year earlier and 42% lower than in the fourth quarter.
Jamie Woodwell, the MBA’s head of commercial real estate research, said the first quarter is typically the year’s quietest, but this year’s first-quarter decline was the worst since 2014.
“Uncertainty and volatility in regard to interest rates and property values, and supply and demand imbalances for some property types, has led to a logjam in commercial real estate sales and financing markets,” Woodwell said. “As loans mature and adjustable-rate loans reset, we should start to get greater insights into where things stand.”
Credit unions accounted for only about 6% of commercial real estate loan production last year.
A sample of 29 credit unions CU Times chose primarily for their 2022 volume of residential real estate originations showed a more modest decrease than the overall market.
These “Big 29” credit unions generated $1.7 billion in commercial real estate loans in the first quarter, down 17% from $2.1 billion a year ago and down 15% from $2.0 billion in the fourth quarter.
The Big 29 accounted for 19% of commercial real estate volume last year, and included eight of last year’s 10 largest producers. The other two were Unify Financial Federal Credit Union of Allen, Texas ($4.2 billion in assets, 299,999 members) and Bellco Credit Union in the Denver metro area ($7.7 billion in assets, 363,495 members).
Unify Financial’s production plopped from $411.6 million in last year’s first quarter to none this year, while Bellco’s fell 51% to $149.3 million.
The MBA found drops across all major property types. Multi-family originations fell 55% from a year earlier and 44% from the fourth quarter. Health care originations fell 69% from a year ago and 65% from the fourth quarter.
On Feb. 14, the MBA forecast total commercial real estate production will fall 15% to $684 billion in 2023, and multi-family loans will fall 16% to $384 billion this year.
Meanwhile, most of the 84 banks responding March 27 to April 7 to a quarterly survey from the Fed said they tightened the lending standard in the first quarter for all types of commercial loans backed by real estate.
The Fed’s April 2023 Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) released Monday found tightening was more common among “mid-sized” banks, defined as those with assets of $50 billion to $250 billion, than with those smaller or larger.
And most banks reported weaker demand for loans secured by nonfarm nonresidential properties, construction and land development loans, and loans secured by multifamily properties.
For multifamily loans, most banks widened the spread on loan rates and lowered the loan-to-value ratio. More often than not, they increased debt service coverage and decreased maximum loan size.
NAFCU Chief Economist Curt Long said banks with less than $250 billion in assets said they were tightening commercial lending because of “concerns about their liquidity positions, deposit outflows and funding costs” — concerns they cited more frequently than the largest banks.