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ommercial/multifamily mortgage loan originations have shown welcome improvement, with a 59% increase in Q3 on a year-over-year basis, according to the Mortgage Bankers Association's Quarterly Survey. However, a closer look at who's lending and where capital is flowing reveals a choppy market. Loans to healthcare properties surged 165% compared to the same period in 2023, while office lending fell 17%. CMBS/conduit loans were up 160% on a year-to-date basis, but lending from depositories declined 5%.
Borrowers are anticipating lower interest rates ahead, even as lenders deal with loan maturities and delinquencies. Jaimie Woodwell, vice president and head of commercial real estate research at the Mortgage Bankers Association, notes that every property is in a unique position, driven by its own type, market, owner, lender, vintage, and more. While uncertainty around some factors might crimp mortgage financing availability, low volumes over the last year and a half have been driven more by lack of demand than a lack of mortgage availability.
Expectations are that the Federal Reserve will cut the Fed Funds rate once more this year and an additional three to four times next year, driving short-term interest rates. However, longer-term interest rates have already priced in those cuts, making them less likely to fall further. In 2023 and the first half of 2024, borrowers and lenders saw time as a net positive for maturing loans, bringing lower interest rates and greater certainty around space market fundamentals.
Rebecca Rockey, deputy chief economist at Cushman & Wakefield, expects liquidity to improve further, driven by improving fundamental market conditions, including declining vacancies and accelerating rents. She notes that debt costs, credit spreads, and asset pricing are more attractive than they were a year ago, with notable momentum from non-agency CMBS issuance.
Lonnie Hendry, Chief Product Officer at Trepp, believes the "higher for longer" narrative is turning into reality for borrowers heading into 2025. The Fed's interest rate pivot has been countered by increasing treasury rates, putting upward pressure on mortgage interest rates. He expects a bifurcated market of "haves and have-nots" to continue in 2025.
Erin Patterson, managing director at Manulife Investment Management, believes originations will continue to increase, marking 2023 as a cyclical low. The MBA forecasts originations to be up 26% in 2024, with office and multifamily sectors facing headwinds due to loan maturities. However, the retail sector is slowly moving back in favor for investors and lenders.
Lauro Ferroni, head of capital markets research at JLL, notes that the real estate transactions market has shown notable improvement since the beginning of 2024, driven by interest rates plateauing and healthy leasing demand. Institutional investors are returning to the market across all property types, especially for transactions above $100 million.
William Maher, director at RCLCO Fund Advisors, expects commercial real estate liquidity to continue improving over the next year as interest rates decline, lenders resolve problematic loans, and transaction volumes increase. Loan availability has generally improved, particularly among CMBS originators, but office will remain problematic due to current values and future cash flow uncertainty.
