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CRE Mortgage Debt Spikes Despite Fewer Originations
Difficult refinancings and delayed payoffs led to a rise in outstanding US commercial and multifamily debt in Q1 despite fewer new originations.
Jordan B. & Han-Gwon Lung
June 20, 2024
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Good morning. Despite slow originations, commercial and multifamily mortgage debt was up nationwide in May due to slower payoffs.
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Market Snapshot
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DEBT outstanding
Commercial Mortgage Debt Spikes Due to Slow Loan Payoffs
The shares of multifamily mortgage debt held by various classes of suppliers.
Difficult refinancings and delayed payoffs led to a rise in outstanding US commercial and multifamily debt in Q1 despite fewer new originations.
By the numbers: According to the Mortgage Bankers Association (MBA), total CRE mortgage debt shot up $40.1B in 1Q24, reaching $4.7T. This rise occurred even as new loan originations slowed down, largely due to fewer property sales and refinancings leading to fewer loan payoffs.
By lender: In Q1, banks saw the biggest spike in commercial/multifamily mortgage holdings, adding $12.8B. CMBS issuers followed with $11B, while agencies/GSEs and life insurer holdings grew by $10.2B and $7B. CMBS, CDO, and other ABS issues saw holdings rise by 1.9%. Meanwhile, state and local retirement fund holdings shrank by 8.3%.
Multifamily debt: The MBA reported that multifamily mortgage debt rose by $23.74 billion in Q1, surpassing the $14.78 billion increase in Q4. Total multifamily debt reached $2.099 trillion, up $98.3 billion (4.9%) year-over-year. Overall commercial mortgage debt, including multifamily, grew 0.9% from Q4 2023 to $4.698 trillion, with multifamily debt accounting for 44.7% of the total.
This chart shows each lender class's current share of multifamily mortgage debt alongside their share of net new mortgage debt in Q4.
➥ THE TAKEAWAY
Who’s growing? The chart above shows that while GSEs were the largest contributor to multifamily mortgage lending growth, banks were close behind, achieving 89% of the GSEs' increase. Life insurers saw faster growth in their holdings, but this was revised down last quarter. The other top 6 lenders contributed less to the growth in multifamily debt. What does that mean? These lenders are continuing to become relatively less important as sources of funds.
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✍️ Editor’s Picks
Builder blues: Builder sentiment in single-family homes hit a 7-month low in June, with NAHB's Housing Market Index dropping to 43.
Homebuilding boom: Lennar Corp. (LEN), the largest US homebuilder, saw orders jump 20% to 21.3 K, and revenue rose 10% to $8.8B.
Debt dilemma: A recent Moody's report highlights higher default risks in CMBS due to $27B in subordinate debt from 2014 to 2023.
Criminal empire: George Norcross, a Democratic kingmaker in NJ, was charged with racketeering, along with 5 other crimes, and faces 10–20 years in prison if convicted.
Mounting mortgages: Financial markets may soon have no choice but to absorb $2T in CRE debt maturities, including $679B in potentially troubled debt.
🏘️ MULTIFAMILY
Washed away: A new developer hopes to revive a stalled SF apartment project on a shuttered car wash site with a larger housing proposal.
Sky-high luxury: Oak Row Equities paid $38.5M for a 49 NW 5th St. site to develop First & Fifth, a 500-unit, 45-story luxury community in Miami.
Texas triumph: Viking Capital acquires Villas at Sundance for $38M with $24.2M in Black Oak Capital financing, and is preparing for $2.3M in exterior and $5K/unit in interior upgrades.
Atlanta acquisition: Scion JV, with Brookfield Asset Management, acquires Atlanta's Reflection, a 741-bed student housing community, assuming an $87.3M loan and a $65M note.
New ownership: CBRE just facilitated the sale of Landing at Fiesta Village, a 220-unit Mesa luxury complex sold by Rockpoint to Millburn & Co.
🏭 Industrial
Bright ideas: Solar installations on warehouse rooftops are facing cost concerns despite growth. These properties currently make up 5% of the Prologis (PLD) portfolio.
Branching out: A California REIT buys Crossroads Distribution Center warehouses, while a Newport Beach company acquires 100 acres in Jacksonville.
Good deal: Stream Realty Partners bought a fully leased 104KSF industrial facility in Chicago for $19M.
🏬 RETAIL
Shopping center coup: Kobalt Investment Co. bought a majority share in the 222.3KSF Rio Norte Shopping Center in Laredo, TX, with diverse retailers.
Elizabeth’s future: Centrum Realty & Sorelle Capital are set to begin construction on a mixed-use multifamily and retail development in Elizabeth, NJ.
Downtown dreams: A new program lowers the retail space threshold in downtown Austin, making downtown shops more accessible to small businesses.
🏢 OFFICE
Building a Citadel: Billionaire Ken Griffin expands Citadel and Securities at 830 Brickell by leasing two more floors, with plans to build a $1B HQ tower in Miami.
Foreclosure fumbles: One Dallas investor's first office-to-residential project, The Bell in Cleveland, is facing foreclosure after its $21M purchase in 2022.
Setting sail: MSC Group acquired a $67M commercial condo in Miami for its North American cruise division headquarters.
Emerald City surge: Seattle's office sector saw 2.5MSF delivered in the first 4 months of 2024, significantly more than during the same period in 2023.
🏨 HOSPITALITY
Coasting on Coconut Grove: short-term rental company Miami Vacation Rentals purchased 19 condo-hotel units, a commercial space, and most of the common areas at Hotel Arya.
PRODUCT REVIEWS & GUIDES
📈 CHART OF THE DAY
Currently, office landlords prefer five types of companies: financial services firms, law firms, consulting firms, tech startups, and media companies. Unsurprisingly, they charge financial services firms the most (~$90PSF on average). Law firms typically sign the longest leases (95–100 months), while tech companies have commitment issues (60–65 months).
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