Dive Brief:

• In another sign that interest rates are hindering the deal environment in multifamily, lending for apartments decreased by 16% year over year in the third quarter, according to the Mortgage Bankers Association’s Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations. Originations fell 12% compared to the second quarter.
• Multifamily wasn’t the only sector to see a slowdown. Office originations decreased 44%, retail fell 6% and industrial declined 4% YOY. Overall, commercial and multifamily mortgage loan originations fell 13% YOY in the third quarter of 2022 compared to the same period last year, according to the MBA.
• The dollar volume of loans from Fannie Mae and Freddie Mac decreased 15% YOY. Commercial mortgage-backed securities fell 71%, while life insurance company portfolios declined 42% for all commercial sectors. However, originations from banks and depositories increased by 25%.

Dive Insight:

After a strong start to 2022, rising interest and cap rates began to hinder loan volume across commercial real estate in the spring, according to Jamie Woodwell, MBA’s head of commercial real estate research.

“Increasing yields across investment alternatives – including the 10-Year Treasury yield more than doubling during the first nine months of the year – have shifted property financing and values, and it will take time for the market to fully absorb these changes. Volatility has been equally impactful, making the sizing of transactions extremely difficult,” Woodwell said in the Q3 report.

Matt Ferrari, co-chief investment officer and head of acquisitions and East Coast asset management for Los Angeles-based TruAmerica Multifamily, said Q3 was significantly slower than previous quarters.

The slowdown has hit different capital sources in different ways. “A broad decline in transaction activity is likely to impact all capital sources, although perhaps not equally,” Woodwell said.

Part of the problem is that investors aren’t able to access the leverage necessary to get deals done. “Sellers aren’t willing to sell at the cap rates that allow us to get the leverage,” Ferrari said. 

The slowdown in originations may not subside anytime soon, making the sizing of transactions difficult, according to Woodwell. “The result has been the first of what may be many quarters of depressed borrowing and lending activity,” he said.

Click here to sign up to receive multifamily and apartment news like this article in your inbox every weekday.