Commercial mortgage debt outstanding rises in 1Q as pandemic wanes

There was a 1.1% increase in commercial and multifamily mortgage debt outstanding during the first quarter, but the majority was from the housing side of the equation, the Mortgage Bankers Association said.

Total commercial and multifamily debt outstanding was $3.93 trillion as of March 31, up by $44.6 billion from the end of 2020. Multifamily debt ended the first quarter at $1.7 trillion, a $28.8 billion or 1.7% increase from three months prior.

On March 31, 2020, just as the pandemic-related closures that affected loan performance for leisure and retail properties began, there was $3.72 trillion of commercial and multifamily debt outstanding, with the multifamily segment responsible for $1.6 trillion.

"The pandemic-era growth in the amount of commercial and multifamily mortgage debt outstanding continued during the first quarter, but the growth was not evenly distributed," Jamie Woodwell, the MBA's vice president of commercial real estate research, said in a press release. "All of the major capital sources increased their holdings of commercial and multifamily mortgages during the quarter, but almost two-thirds of the overall growth came from multifamily properties, with 80% of that multifamily growth coming from federally-backed agency and government-sponsored enterprise mortgage-backed securities and portfolios."

At the end of the first quarter, banks held $1.49 trillion of commercial and multifamily mortgages, or 38% of the outstanding total. This is up slightly from $1.48 trillion (38%) on Dec. 31, 2020 and $1.4 trillion (39%) as of March 31, 2020.

But when it comes to multifamily debt outstanding only, the agency/GSE investors have the largest share, 50% at $861 billion. That total also makes them the second largest investor group overall.

In the fourth quarter, the agency/GSE sector held $838 billion of multifamily debt, while at the end of the first quarter of 2020, they held $752 billion.

But GSE investments in multifamily mortgages going forward may be stifled by regulatory caps limiting purchases of these loans.

Life insurers held $588 billion as of March 31, up from $587 billion in the fourth quarter and $572 billion in the first quarter of 2020. Meanwhile, securitizers held $540 billion of outstanding debt in the first quarter, up from $533 billion in the fourth quarter and $516 billion one year ago.

Even with the quarterly and annual growth, and the U.S. economy continues reopening, investors are likely to reassess where things stand when it comes to providing fresh financing.

"As the uncertainty from the COVID-19 pandemic wanes, lenders will have greater clarity into the different properties and property types and be in stronger positions to make new loans," Woodwell said.