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Commercial Mortgage Originations, Including CMBS, Rising to Meet Refinancing Demand

Commercial Mortgage Originations, Including CMBS, Rising to Meet Refinancing Demand

As the industry waits for an upcoming avalanche of commercial mortgage maturities later this year, real estate lenders are stepping up their game.

In April, CMBS shops originated $8.9 billion in new loans, bringing the total for the year so far to $35.81 billion, according to Commercial Mortgage Alert, an industry publication. The figure was almost twice the size of the $4.6 billion in CMBS loans originated in April 2014.

What’s more, in their recent weekly CMBS report, Meghan C. Kelleher and Chong C. Sin, analysts with J.P. Morgan Securities LLC, noted that  “After a brief lull in issuance, the pipeline is beginning to ramp up for May with two conduit deals totaling about $2.8 billion currently marketing. Agency CMBS issuance is also ahead of last year’s pace.”

In J.P. Morgan’s estimates, year-to-date private label CMBS issuance has already outpaced the levels seen during the same period last year by 48 percent and remains on pace to reach at least $105 billion in new issuance for full-year 2015.

The big picture

In fact, total commercial/multifamily loan originations, including CMBS loans and loans issued by banks and life insurance companies, went up by 49 percent in the first quarter of 2015 compared to the first quarter of last year, according to a quarterly survey released by the Mortgage Bankers Association (MBA), an industry association, this week.

The MBA’s Commercial/Multifamily Mortgage Originations Index recorded a 113 percent year-over-year increase in CMBS originations in the first quarter; a 51 percent increase in loan originations by life insurance companies; a 306 percent increase in originations by government agencies Fannie Mae and Freddie Mac and a 1 percent drop in originations by commercial banks.

Mortgage lenders appeared the most bullish on industrial properties, with a 269 percent increase in originations in the first quarter of 2015, followed by multifamily properties, which saw a 71 percent increase in originations. Loan originations on office properties went up 53 percent year-over-year and on hotels 51 percent. The retail real estate sector saw only a modest increase in originations, at 5 percent, and originations on health care properties stayed flat with first quarter 2014 levels.

However, when it came to CMBS originations in the first quarter of 2015, hotels saw the largest share of the pie, followed by office buildings and retail properties, according to researchers with Trepp LLC.

“One of the main drivers behind CMBS originations over the past several quarters is the more than $300 billion of maturing loans that will come due over the next three years, the majority of which are still subject to prepayment lockout or penalty provisions,” they wrote in a recent note. “Despite the added cost of paying down their loans early, many borrowers are refinancing to lock in low rates now and defeasing their pending maturities.”

A winning point

There has also been a slight improvement in the CMBS delinquency rate in April, after the delinquency rate in March stayed flat. The 30+ day delinquency rate for CMBS loans moved down one basis point from March to April, to 5.57 percent, according to information provider Trepp LLC. Only the lodging and retail sectors saw month-over-month improvement in their delinquency rates, by two and six basis points respectively. The CMBS delinquency rate in the multifamily sector went up 19 basis points, to 8.92 percent; in the industrial sector by 15 basis points, to 7.83 percent; and in the office sector by 5 basis points, to 6.11 percent.

Overall, $1.35 billion in loans became delinquent in April, while $700 in loans were cured. Properties with loans that became newly delinquent last month included 400 Atlantic Street, an office building in Stamford, Conn. that has entered foreclosure, the Galleria at Pittsburgh Mills in Tarentum, Pa. and Metro Square 95 Office Park in Jacksonville, Fla., among others.

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