Commercial and Multifamily Sector Remains an Industry Hot Spot

Commercial and multifamily mortgage bankers enjoyed a record year in 2004, the Mortgage Bankers Association reported here last week. And most expect the party to continue, as long as worries about the availability of terrorism insurance don't roil the market.

"Everything was up," MBA chief economist Doug Duncan told reporters at the group's Commercial Real Estate/Multi-Family Finance Conference. An estimated 4,500 industry professionals registered for the event, which has supplanted the secondary market meeting as the MBA's second-largest annual gathering.

With little on the horizon to slow investment real estate, moreover, Mr. Duncan expects "more of the same" for 2005.

"I have no formal forecast," he said. "But it's reasonable to expect another record year, or at least very close to it."

For 2004, mortgage bankers originated $136 billion in commercial and apartment mortgages, a 16% increase from $117 billion the year before, with fourth-quarter production topping all others in the MBA's quarterly survey.

The October-November-December total was $42.7 billion, $7.1 billion better than third-quarter 2004 volume and $3.8 billion above the same period last year.

The big jump reflected the usual push to close deals by the end of the year, with "widespread gains" across all property and investor types, the MBA said.

The increase in last year's volumes were across all sectors, too. But Fannie Mae and FHA multifamily investors registered declines, the only investor types to do so.

"By any measure, our industry had a great year," said MBA chairman Michael Petrie. "We're flush with capital. We outperformed other asset classes, and we've earned a permanent place in institutional asset allocation models."

Office lending recorded the largest gain, up $7.2 billion. But retail loans grew by a healthy $4.7 billion. Increases of $1.8 billion and $1.5 billion also were reported in industrial and apartment lending, respectively.

Among investor types, commercial banks netted the largest gain at $9.1 billion. Life insurance companies increased their volumes by $4.9 million, while the commercial mortgage-backed securities conduits boosted their levels by $2.4 billion.

Freddie Mac also had a better year in 2004, upping its totals by $1.9 billion, the MBA reported. But Fannie Mae's volume was off by $1.9 billion, and FHA's was down $1.3 billion.

CMBS conduits purchased 30% of the commercial mortgages originated in 2004, for a total of $41.2 billion. Originators for life companies acquired 21% of the total, or $29 billion, while mortgage bankers were responsible for 19% or $26 billion. The combined Fannie-Freddie total, meanwhile, was $21.3 billion, or 15.6% of originations.

Looking forward, the MBA said the only big problem facing commercial and apartment lenders is the possibility they will be unable to insure to cover damage or loss caused by terrorist attacks. If legislation to renew the Terrorism Risk Insurance Act isn't on a fast track by June, association officials warned, investors are likely to start pulling in their horns.

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