Pandemic Disruption Cuts Commercial Real Estate Borrowing in Half

Article originally posted on CoStar on August 20, 2020

As coronavirus travel restrictions emptied hotels, lending for that industry dropped 91%. (Getty Images)

In a measure of how much COVID-19 has affected commercial real estate, mortgage loan origination fell 48% in the second quarter from a year earlier, according to a new report from the Mortgage Bankers Association.

The primary damage came in the initial few weeks after the outbreak in the United States, when lending came to a near halt. Since then, the pace of lending has been picking up, but the pace and amount lent indicate it may be a while before it returns to pre-coronavirus activity.

The decline in borrowing was widely uneven across property types. The figures show a marked difference among properties that were the most dramatically and immediately hit by the pandemic, lodging and retail, and those that have fared better, multifamily and industrial.

Loan origination for hotel properties fell 91% year over year. Declines for other property types include retail, decreasing 64%; office, falling 71%; industrial, sliding 44%; healthcare, dropping 40%; and multifamily, declining 24%.

Multifamily lending held better than other property types because of refinancing volume from government-sponsored housing lenders Fannie Mae and Freddie Mac, according to Jamie Woodwell, MBA’s vice president of commercial real estate research. Fannie Mae and Freddie Mac lending volumes were down only 5% from the second quarter of 2019.

“Commercial real estate borrowing and lending slowed dramatically in the second quarter, as uncertainty around the COVID-19 pandemic caused both borrowers and lenders to focus more of their attention on their existing books of business instead of new opportunities,” Woodwell said in a statement.

The dollar volume of loans originated for commercial mortgage-backed securities decreased 95% year over year, and life insurance company lending was down 49%.

While bank lending volume was down 55% from a year earlier, CBRE’s lender survey this month indicated that banks overall captured over 70% of loan origination in the second quarter. That is more than double recent averages.

Banks, which were aided by emergency liquidity measures by the Federal Reserve, were a source of refinance capital across all major property types and funded several bridge and construction loans.

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