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MBA Survey Shows Continued Strength Through Second Quarter

Commercial and multifamily lending volumes posted large increases during the second quarter of 2003, up 56% from the first quarter and up 29% from the same quarter last year, according to the Mortgage Bankers Association of America’s (MBA’s) latest survey of commercial and multifamily mortgage originations. MBA’s survey reported lending volume of $29.5 billion in the second quarter, compared with a revised $22.9 billion in the second quarter of 2002.

The year-over-year increase in lending was for all property types, with the largest dollar increases coming from apartment lending.

For the first half of 2003, commercial and multifamily originations totaled $48.0 billion, $12.7 billion more than the same period last year and $15.3 billion more than the first two quarters of 2001.

“The strength in new lending during the second quarter is not at all surprising,” noted Jeff Weidell, senior vice president of Northmarq Capital and vice chair of MBA’s Commercial/Multifamily Research Committee. “With interest rates at or near their lowest point in more than 40 years, the cost of financing new transactions and refinancing existing commercial debt presented an unprecedented opportunity for most market participants, and has been the major factor in driving up loan demand.”

In mid-June interest rates hit their lowest points in decades, with the benchmark 10-year Treasury bond yield dropping to 3.13% versus an average of just under 5% in June 2002. Similarly, the one-year LIBOR rate averaged 1.20% in June, versus 2.25% in June 2002.

Loans for retail shopping-center properties were up 44% from a year earlier, while office-building lending was up 39%. Multifamily lending was up 21% and represented 51% of all loans reported in the survey.

After several years of relatively little activity, loans for health-care and hospitality properties registered sharp gains during the second quarter. Health-care properties had an increase of almost 200% over a year earlier and hospitality property lending was up 35%. The surge in health-care lending reflected a sharp increase in activity at just one lender.

Conduits for mortgage-backed securities (MBS) funded 37% of the total loan volume during the second quarter of 2003, versus 32% during the same quarter last year. In contrast, the life company share fell below 20% during the second quarter of 2003. This figure was down from the 24.7% reported a year earlier, although part of the decline resulted from a change in the sample of reporting firms. The $5.8 billion of life insurance funding in the second quarter of 2003 was up by more than $1 billion from last year, and the dollar amount funded by conduits increased by more than $4 billion during the same period.

Fannie Mae and Freddie Mac purchased 37% of the multifamily loans during the second quarter. This share is well below the 49% registered in 2001 and slightly below the 39% average of last year. Fannie Mae purchases during the second quarter rose by nearly 70%, while Freddie Mac purchases decreased by 19%. FHA activity continued strong, up by 43% over the same quarter last year.

While commercial and multifamily loan volumes have clearly benefited from low interest rates, Doug Duncan, MBA’s chief economist and senior vice president, cautioned, “The sharp increase in bond rates since mid-June have already made fixed-rated deals more expensive, particularly compared with variable-rate ones. While we expect rates to come down from recent high levels for the remainder of 2003, our forecast does call for rates to move up slowly through 2004. Thus, the deal flow will be become more dependent on an increase in economic growth, specifically job growth, and the resulting impact on property valuations.”

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