Commercial and multi-family mortgage banker loan originations set a new record during the third quarter of 2005, according to the Mortgage Bankers Association (MBA). The $58.3 billion in loan originations reported for the third quarter was 64 percent higher than the third quarter of 2004 and 31.2 percent higher than the second quarter of 2005. The quarter-to-quarter increase was led by substantial gains among multi-family and office property types, while commercial mortgage-backed securities (CMBS), conduits and life insurance companies led the way among investor types.
MBA also reported that year-to-date loan originations were 43.6 percent higher than they were in the third quarter of 2004.
"Capital continues to flow into the commercial and multi-family real estate markets on both the debt and equity sides," noted Douglas G. Duncan, MBA chief economist and senior vice president of research and business development. "The 31.2 percent quarter-to-quarter increase in origination volume indicates that the rate of growth in this market is continuing at an impressive pace."
The increase in commercial/multi-family lending activity during the third quarter was across all property types. The $22.8 billion increase over the third quarter of 2004 included a 55 percent increase in loans for office buildings, a 45 percent increase in loans for multi-family properties, a 33 percent increase in loans for retail and an 80 percent increase in loans for industrial space. The largest percentage increase in lending was for hotel properties, which saw a 531.6 percent increase from the third quarter 2004. This major percent increase in hotel properties is largely due to a surge of production volume over the last two quarters.
Among investor types, commercial banks and CMBS, conduits drove much of the overall increase, although lending activity increased among almost all types. Mortgage banker originations for conduits increased 144 percent from the third quarter of 2004, originations for commercial banks increased by 33 percent and originations for life insurance companies increased 22 percent. Originations for Fannie Mae increased seven percent, originations for Freddie Mac increased 18 percent, originations for FHA increased 104 percent and originations for pension funds dropped by 11 percent.
Multi-family was again the dominant property type, representing 34 percent of total third-quarter 2005 originations. Office properties were the next most active property group, with 24 percent of the total, followed by retail properties with 15 percent of the total.
CMBS conduits purchased the largest share of loans originated during the third quarter--41 percent of the quarter's total. Originations for commercial banks were 19 percent of the total, loans for life insurance companies were 17 percent of the total and the combined originations for Fannie Mae and Freddie Mac were 10 percent of the total.
The $13.9 billion increase in lending activity between the second and third quarters of 2005 represented a dramatic increase over the nearly unchanged origination volumes observed in 2004's second- to third-quarter origination numbers. The increase was led by large increases in multi-family, office and hotel lending, which grew by 26 percent, 32 percent and 115 percent, respectively. The gains were widespread, with all property types and all investor types recording increases.
Originations by commercial and multi-family mortgage bankers in the first three quarters of 2005 were 43.6 percent higher than they were at the same time last year, led by loans for multi-family properties and for CMBS conduit investors.
Year-to-date originations of multi-family loans increased by 36 percent, compared to last year's first three quarters, while year-to-date lending for office properties increased 38 percent and for retail by 23 percent. Lending for hotels grew by 298 percent.
The year-to-date loan originations for commercial banks increased by 54 percent, for CMBS by 99 percent and for life insurance companies by 17 percent. Year-to-date originations for Fannie Mae increased nine percent, compared to last year's first three quarters, while originations for Freddie Mac and FHA each fell.
The average loan size increased for all property types between the third quarter of 2004 and the third quarter of 2005, including a jump in the average loan size for hotels from $19 million to $52 million. A robust market in the sale and purchase of hotel properties combined with a small number of high dollar hotel property transactions drove much of the increase.
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