Dive Brief:

• Loan originations for multifamily properties fell 46% in 2023, as lending across commercial real estate dropped 47% during the year, according to the Mortgage Bankers Association’s Quarterly Survey of Commercial/Multifamily Mortgage Bankers originations. 
• In the fourth quarter, apartment loan originations dropped 27%, compared to 25% for commercial real estate as a whole, according to the MBA. However, new multifamily loans increased by 13% compared to Q3. 
• Other sources painted an improving picture of the lending market. The CBRE Lending Momentum Index, which tracks the pace of the commercial real estate services firm’s originated commercial loan closings in the U.S., increased by 1.0% from Q3 to Q4 2023 — marking the first quarterly increase since Q1 2022. Still, overall, the index fell 38.1% compared to Q4 2022. 

Dive Insight:

As loan originations fell, it's no surprise originators, whether private or government-backed, saw declines across the board in 2023.

The government-sponsored enterprises’ originations declined 21% in 2023 and 29% in Q4, according to the MBA. But Fannie Mae and Freddie Mac weren’t the only government-affiliated lenders slowing down in 2023. 

During fiscal year 2023, HUD generated $12.4 billion — its lowest volume in at least 10 years, according to a report from Trepp. The agency also saw loan volume drop 38% YOY in Q1 of its latest fiscal year.

In FY Q1 2024, HUD funded 154 loans with a balance of $2.52 billion against multifamily and healthcare properties. A year earlier, it originated 249 loans with a balance of $4.09 billion. 

An improving situation?

There were signs of improvement for some lenders in Q4. “The fourth quarter saw a small pickup from the previous quarter, as is usually the case, but was still down about 25% from 2022’s already suppressed fourth-quarter pace,” Jamie Woodwell, MBA’s Head of Commercial Real Estate Research, said in a press release. 

James Millon, U.S. president of debt and structured finance for CBRE, is seeing more constructive lending conditions for specific asset classes, despite challenges in the capital markets.

"We are experiencing a material decline in credit spreads in the liquid markets, lower trading band for benchmarks and a reset of cap rates at higher levels,” Milton said in a press release. “Additionally, as the Federal Reserve has indicated interest rate cuts on the horizon, these factors combined have created a more favorable transactional environment in the first quarter."

If transactions do pick up, they should open the door for new originations, specifically on the construction front, according to Ryan Davis, CEO of Witten Advisors, a Dallas-based firm that provides apartment companies with advisory services.

“The transaction market has completely frozen up, so those loans aren't getting paid off,” Davis told Multifamily Dive. “And so the banks are getting loans refinanced, then they have capital available to go out and make a new loan. But that just isn't happening right now.”

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