Outstanding commercial and multifamily debt is on the rise

Commercial and multifamily mortgage debt outstanding increased on a quarter-to-quarter basis even as new originations have tanked from a year ago, the Mortgage Bankers Association reported.

Holders of these loans — banks and thrifts; life insurance companies; government agencies; and securities investors — reported their portfolios grew by $37.7 billion or 0.8% for the three months ended June 30.

"Commercial and multifamily mortgage originations are down by more than half from a year ago, and this lack of new demand means that fewer loans are being paid off," said Jamie Woodwell, head of commercial real estate research, in a press release. "This in turn is helping to maintain, and in some cases even grow, the amount of credit outstanding."

Total commercial debt outstanding ended the second quarter at $4.6 trillion, up from $4.57 trillion on March 31 and $4.38 trillion on June 30, 2022.

The multifamily share is $2.03 trillion, up from $2 trillion in the first quarter and $1.9 trillion one year ago.

Most of those increases came from the GSEs, which saw their portfolios add $13.4 billion on a quarter-to-quarter basis, slightly more than half of the sector's increase. Banks and thrifts added $7.4 billion while life insurers added $4.3 billion.

An earlier MBA report noted that even though the second quarter posted 23% higher volume in commercial and multifamily mortgages versus the first quarter, it was still 53% lower compared with the period ended June 30, 2022.

At the same time, commercial mortgage delinquency rates are on the rise as certain sectors, particularly lodging, retail and office remain under stress originally driven by the pandemic.

Those loans are more likely to slip into foreclosure as they are unable to refinance before or at term end unless investors agree to some sort of workout plan.

For the full year, the MBA is now expecting $504 billion of new originations (including current loans that reach their term and refinance), down from $816 billion in 2022. Multifamily only volume should come in at $299 billion, compared with $480 billion one year prior.