A recent report by the Mortgage Bankers Association (MBA) shows remarkable confidence in the commercial real estate sector by every major investor group. The level of commercial/multifamily mortgage debt outstanding increased by $64.8 billion, or 1.6 percent, in the third quarter of 2021.
Total commercial/multifamily debt outstanding rose to $4.05 trillion at the end of the third quarter. Multifamily mortgage debt alone increased $26.6 billion, or 1.5 percent, to $1.8 trillion from the second quarter of 2021, reported MBA.
“Every major investor group increased their holdings of commercial and multifamily mortgages during the third quarter, as many property types have healed considerably since the shutdowns at the onset of the COVID-19 pandemic in early 2020,” said Jamie Woodwell, MBA’s Vice President of Commercial Real Estate Research. “Strong interest from both borrowers and lenders is likely to continue to drive increases in commercial and multifamily mortgage debt in 2022.”
MBA researchers say the four largest investor groups were: 1) banks and thrifts; 2) federal agency and government sponsored enterprise (GSE) portfolios and mortgage-backed securities (MBS); 3) life insurance companies; and 4) commercial mortgage-backed securities (CMBS), collateralized debt obligation (CDO) and other asset backed securities (ABS) issues.
Commercial banks continue to hold the largest share, roughly 38 percent of commercial/multifamily mortgages, at $1.5 trillion. Agency and GSE portfolios and MBS are the second largest holders of commercial/multifamily mortgages with $885 billion or 22 percent. Life insurance companies hold $609 billion or 15 percent, and CMBS, CDO and other ABS issues hold $564 billion or 14 percent. Many life insurance companies, banks and the GSEs purchase and hold CMBS, CDO and other ABS issues. These loans appear in the report in the “CMBS, CDO and other ABS” category. MBA’s analysis summarizes the holdings of loans or, if the loans are securitized, the form of the security.
Looking solely at multifamily mortgages in Q3 2021, agency and GSE portfolios and MBS hold the largest share of total multifamily debt outstanding at $885 billion, or 50 percent, followed by banks and thrifts with $496 billion (28 percent), life insurance companies with $177 billion (10 percent), state and local government with $106 billion (6 percent), and CMBS, CDO and other ABS issues holding $55 billion (3 percent). Nonfarm non-corporate businesses hold $20 billion (1 percent).
In the third quarter of 2021, commercial banks saw the largest gains in dollar terms in their holdings of commercial/multifamily mortgage debt, an increase of $20.9 billion, or 1.4 percent. Agency an GSE portfolios and MBS increased their holdings by $14.1 billion, or 1.6 percent, life insurance companies increased their holdings by $12.9 billion, or 2.2 percent, and REITs increased their holdings by $7.8 billion, or 7.7 percent.
In percentage terms, REITs saw the largest increase, at 7.7 percent, in their holdings of commercial/multifamily mortgages. Conversely, private pension funds saw their holdings decrease 4.9 percent.
The $26.6 billion increase in multifamily mortgage debt outstanding from the second quarter of 2021 represents a gain of 1.5 percent. In dollar terms, agency and GSE portfolios and MBS saw the largest gain at $14.1 billion, or 1.6 percent, in their holdings of multifamily mortgage debt. Commercial banks increased their holdings by $5.6 billion (1.1 percent), and life insurance companies increased by $3.8 billion (2.2 percent).
REITs saw the largest percentage increase in their holdings of multifamily mortgage debt, up $649 million (9.5 percent). Private pension funds saw the largest decline in their holdings of multifamily mortgage debt, down $65 million or 14.3 percent.
MBA believes continued strong interest from both borrowers and lenders will likely translate into commercial and multifamily mortgage debt holdings increasing in 2022. That is a positive signal for the CRE sector that bears watching as the year unfolds.