Bloomberg News

U.S. Commercial-Property Lending Rises to Highest Since 2007

November 04, 2011

(Updates with comments from researcher in seventh and eighth paragraphs.)

Nov. 3 (Bloomberg) -- U.S. commercial-property loan originations rose to the highest since 2007 in the third quarter as banks, insurers and government-backed finance companies increased lending, the Mortgage Bankers Association said today.

New loans for commercial and multifamily mortgages climbed 98 percent from a year earlier and 10 percent from the second quarter, according to an index compiled by the Washington-based association. The group’s gauge reached 138, the highest since the last three months of 2007, when it was 275.

Lending from banks, life insurers and mortgage-financiers Fannie Mae and Freddie Mac more than offset a sequential decline in originations for commercial-mortgage backed securities. The loan surge likely is focused on higher-quality real estate in major markets that those companies tend to favor, Julia Tcherkassova and Keerthi Raghavan, analysts at Barclays Capital Inc., wrote in a note to clients today from New York. They estimated the total volume of originations rose to about $31 billion from $28 billion in the second quarter.

“The survey numbers support our view that originations will continue to increase in the near term, though growth will be sluggish and concentrated outside the CMBS conduit space,” the analysts wrote. “Properties in secondary and tertiary markets could face difficulties finding avenues to refinance.”

Market Jolt

The CMBS market had provided the cheap debt financing that drove commercial real estate to record highs in 2007, and sales of the securities were starting to come back gradually until late July. The market got a jolt that month when Standard & Poor’s pulled its rating on a $1.5 billion offering, and has been whipsawed by concern that the U.S. economic recovery is faltering.

U.S. commercial real estate prices rose for a fourth straight month in August, according to Moody’s Investors Service. A total $49.8 billion of commercial property changed hands in the third quarter, down from $58.5 billion in the previous three months, Real Capital Analytics Inc. said Oct. 20.

The increase in loan originations comes as lenders seek higher yields with limited risk, said Jamie Woodwell, vice president for commercial real estate research at the Mortgage Bankers Association.

‘Attractive Option’

“Investors have a long history with these mortgages and understand them pretty well,” he said in a telephone interview from Overland Park, Kansas. “They’ve performed relatively well through the credit crunch and recession. Now, looking at different places to put their dollars to work, commercial mortgages are a relatively attractive option.”

Fannie Mae and Freddie Mac increased commercial-property originations 47 percent from a year earlier, the MBA said. Lending from life insurance companies climbed 61 percent and commercial-bank originations rose 433 percent, according to the group’s report.

Loans for conduits for CMBS more than doubled from the year-earlier period, while tumbling 48 percent from the second quarter.

The MBA’s origination index peaked at 352 in the second quarter of 2007.

--Editors: Kara Wetzel, Christine Maurus

To contact the reporter on this story: John Gittelsohn in Los Angeles at johngitt@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net


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