Credit Unions Gained Commercial Lending in 2023

Last year was a poor one for commercial lending, but credit unions managed to increase their tiny share of the market despite meager originations.

But delinquency rates are starting to rise.

All lenders held $4.69 trillion in commercial loans backed by real estate as of Dec. 31, up 2.8% from a year earlier, according to an MBA report released March 14.

Jamie Woodwell, the MBA’s head of commercial real estate research, said the growth in commercial mortgage debt over the 12 months and the year’s last three months was among the slowest paces since the mid-2010s.

“Every major capital source increased its mortgage holdings during the year,” Woodwell said. “Mortgage originations were down by roughly 50% in 2023 compared to 2022, but that meant that few loans were paying off, helping maintain portfolio sizes even in the face of lower inflows.”

In January, the MBA estimated commercial real estate production fell 46% last year to $444 billion, and it forecast that production will rise 30% to $576.3 billion in 2024 and rise 25% to $717 billion in 2025.

NCUA data showed credit unions produced $30.6 billion in commercial real estate loans in the 12 months ending Dec. 31, down 41% from 2022. Fourth-quarter production fell 31% to $7.5 billion.

Credit unions held $147.9 billion in commercial real estate loans Dec. 31, up 13% from a year earlier and up 2.8% from September.

Credit unions ended the year with a 3.1% sliver of the commercial real estate market, up from 2.8% a year earlier.

Credit unions lend heavily into multi-family projects, which have fared better than retail and office properties, which have been damaged by changing shopping and work patterns since the pandemic.

Credit unions held $36.1 billion in multi-family loans at the end of 2023, up 16% from a year earlier and up 3.3% from September.

Credit unions’ share of the $2.09 trillion multi-family mortgages was 1.7% at Dec. 31, up from 1.5% a year earlier.

Delinquency rates for credit union commercial loans had been running steadily low. But they increased in the fourth quarter to 0.60%, up from 0.32% a year earlier and 0.44% in September. That included the 7% of commercial loans not backed by real estate, where delinquency rates have hovered around 2% for the past year.

Delinquency rates are much lower for multi-family and other commercial real estate loans, but they’ve increased much faster, especially in the fourth quarter.

The 60-day-plus delinquency rate on multi-family loans was 0.23% at Dec. 31, up from 0.07% a year earlier and 0.09% in September.

Other commercial lender groups also saw increases in delinquency rates from the third quarter to the fourth quarter, according to an MBA report released Monday.

“Commercial mortgage delinquency rates rose again during the fourth quarter of 2023,” Woodwell said. “Every major capital source has seen an increase over the last six months, as higher interest rates, uncertainty about property values and challenges in some property fundamentals work their way through the markets.”