MBA Predicts Solid Year for Commercial Mortgage Lenders
Written By: Joel Palmer, Op-Ed Writer
Commercial real estate mortgage firms expect a strong year in 2020 after a record year of lending in 2019.
The Mortgage Bankers Association (MBA) released its 2020 Commercial Real Estate Finance Outlook survey. It showed that:
64 percent of respondents expect commercial real estate originations to increase in 2020.
16 percent expect at least a 5 percent increase across the entire market, while 42 percent expect that much of an increase in their own firm’s commercial lending.
80 percent of originators expect borrowers to have a strong or very strong appetite to take out new loans.
Loan returns are expected to remain muted and risks are expected to hold steady.
Originators tend to expect there to be greater upward pressure (than downward) on interest and capitalization rates. Industrial cap rates are viewed as more likely to decline than are cap rates for other property types. Retail cap rates are viewed as the most likely to rise.
Changes in long-term interest rates, new construction activity and the broader economy are seen by a majority of respondents as having potentially negative impacts on the markets in the coming year.
In a separate forecast released last week, MBA said it expects commercial and multifamily mortgage bankers to close a record $683 billion in loans, a 9 percent increase from the $628 billion in 2019.
Total multifamily lending alone, which includes some loans made by small and midsize banks not captured in the overall total, is forecast to rise 9 percent to $395 billion in 2020, according to MBA. That would surpass the $364 billion originated in 2019.
MBA anticipates volumes will plateau in 2021, falling slightly to $660 billion in commercial/multifamily mortgage bankers originations and $392 billion in total multifamily lending.
"Commercial and multifamily real estate markets got a shot in the arm from low interest rates in 2019," said Jamie Woodwell, MBA's vice president for commercial real estate research. "In addition to making mortgage borrowing less expensive, lower yields on a broad array of investment options are buoying the values of industrial, apartment, office, retail and other income-producing properties. This increase in property values is expected to translate into increased sales transactions and demand for mortgage debt in 2020.”
Added Woodwell, "Overall, market leaders see an environment where there is more debt available than there are deals looking for debt, and expect 2020 should be slightly stronger than 2019." The MBA outlooks mirror those of other commercial real estate projections.
CBRE’s 2020 U.S. Outlook predicts a very good year for the industry.
CBRE expects strong demand for office space in 2020, however office completions will decrease slightly from 56.4 million square feet in 2019 to 51.1 million square feet this year. Despite the moderate decline, CRBE said completions will outpace forecast net absorption of 20 million square feet.
Multifamily is positioned for continued favorable performance in 2020, according to the report, but will experience some cooling due to new supply outpacing demand. CBRE predicts that multifamily completions will total 280,000 units, compared with an estimated 281,000 units in 2019.
Demand for light-industrial warehouses of less than 120,000 sq. ft. will accelerate as e-commerce companies race to offer same-day delivery to customers.
2020 will be a pivotal year for reinventing the retail landscape with a slowdown in new supply, the integration of sectors and uses in abundant mixed-use redevelopment, and the emergence of new brands.
About the Author
As an NAMU® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
