Dive Brief:
- Commercial and multifamily loan originations were down 47% during the third quarter of 2020 compared to a year ago, even though they rebounded 12% from the nadir of the impacts of the coronavirus pandemic, according to new numbers released by the Mortgage Bankers Association.
- Some sectors were hit harder than others, with hotel properties seeing a 94% year-over-year drop in lending volumes compared to a year ago. Relative bright spots included industrial properties, which decreased by just 23% amid continued activity for data center development, and a 31% decrease for multifamily properties.
- "Borrowing and lending backed by commercial and multifamily mortgages remained subdued during the third quarter," said Jamie Woodwell, MBA's vice president of commercial real estate research, in a statement. "Every major property type and capital source recorded a decline compared to last year's third quarter. Originations backed by industrial and multifamily properties saw smaller declines than other property types, with multifamily lending buoyed by loans made for Fannie Mae, Freddie Mac and FHA."
Dive Insight:
While observers have said money for development was abundantly available during the third quarter, the overall decline in lending volume illustrates the hesitancy of developers in multiple sectors to take risks on new projects during the uncertainty of the COVID-19 pandemic.
Indeed, several billion-plus dollar projects that were already underway have decided to cease construction until more clarity surrounding the pandemic emerges.
But while the year-over-year numbers show the severity of negative impacts of the current development environment, shorter timelines offer hope that some developers are coming off the sidelines.
For example, third quarter originations for industry properties were up 67% from the second quarter, while the office sector rose 35%. At the same time, the retail and hotel sectors continued to drop further, down another 27% and 45% respectively. Overall, lending was down across all sectors 35% year to date.
This chart shows year-over-year, sequential quarterly and year-to-date loan origination comparisons by sector:
Loan origination trends by sector, 2020
| Sector | Y-o-Y | Q2 to Q3 | YTD |
|---|---|---|---|
| All | -47% | 12% | -35% |
| Industrial | -23% | 67% | -35% |
| Multifamily | -31% | 4% | -17% |
| Healthcare | -51% | 32% | -35% |
| Office | -58% | 35% | -47% |
| Retail | -83% | -27% | -67% |
| Hotel | -94% | -45% | -76% |
SOURCE: Mortgage Bankers Association
