Commercial/Multifamily Mortgage Debt Grows In Q4 Of 2019

The level of commercial/multifamily mortgage debt outstanding at the end of 2019 was $248 billion (7.3 percent) higher than at the end of 2018, according to the Mortgage Bankers Association’s (MBA) latest Commercial/Multifamily Mortgage Debt Outstanding quarterly report.

MBA’s report found that total mortgage debt outstanding in the final three months of 2019 rose by 2.1 percent ($75.0 billion) compared to last year’s third quarter, with all four major investor groups increasing their holdings. Multifamily mortgage debt grew by $30.4 billion (2.0 percent) to $1.53 trillion during the fourth quarter, and by $116.7 billion (8.2 percent) for the entire year.

“In 2019, the amount of mortgage debt backed by commercial and multifamily properties grew by the largest annual amount since before the Global Financial Crisis,” said Jamie Woodwell, MBA’s Vice President of Commercial Real Estate Research. “Every major capital source increased their holdings, and some by double digits. Continuing the recent trend, the growth in multifamily mortgage debt outpaced that of other property types.”

Added Woodwell, “Looking ahead, a key question will be how the coronavirus and related economic shocks will affect the market’s momentum in 2020. At this point it is still too early to tell.”

The four major investor groups are: bank and thrift; commercial mortgage backed securities (CMBS); collateralized debt obligation (CDO) and other asset backed securities (ABS) issues; federal agency and government sponsored enterprise (GSE) portfolios and mortgage backed securities (MBS); and life insurance companies.

MBA’s analysis summarizes the holdings of loans or, if the loans are securitized, the form of the security. For example, many life insurance companies invest both in whole loans for which they hold the mortgage note (and which appear in this data under “Life Insurance Companies”), and in CMBS, CDOs and other ABS for which the security issuers and trustees hold the note (and which appear here under CMBS, CDO and other ABS issues).

Commercial banks continue to hold the largest share (39 percent) of commercial/multifamily mortgages at $1.4 trillion. Agency and GSE portfolios and MBS are the second largest holders of commercial/multifamily mortgages, at $744 billion (20 percent of the total). Life insurance companies hold $561 billion (15 percent), and CMBS, CDO and other ABS issues hold $504 billion (14 percent).

MULTIFAMILY MORTGAGE DEBT OUTSTANDING

Looking solely at multifamily mortgages, agency and GSE portfolios and MBS hold the largest share of total debt outstanding at $744 billion (49 percent of the total), followed by commercial banks with $459 billion (30 percent), life insurance companies with $149 billion (10 percent), state and local governments with $88 billion (6 percent), and CMBS, CDO and other ABS issues with $48 billion (3 percent).

CHANGES IN COMMERCIAL/MULTIFAMILY MORTGAGE DEBT OUTSTANDING

In the fourth quarter of 2019, CMBS, CDO and other ABS issues saw the largest rise in dollar terms in their holdings of commercial/multifamily mortgage debt, with an increase of $23.1 billion (4.8 percent). Commercial banks increased their holdings by $21.5 billion (1.5 percent), agency and GSE portfolios and MBS increased their holdings by $16.1 billion (2.2 percent), and finance companies saw the largest decrease at $117 million (0.4 percent).

In percentage terms, CMBS, CDO and other ABS issues saw the largest increase – 4.8 percent – in their holdings of commercial/multifamily mortgages, and state and local government retirement funds saw their holdings decrease the most, at 1.0 percent.

CHANGES IN MULTIFAMILY MORTGAGE DEBT OUTSTANDING

The $30.5 billion rise in multifamily mortgage debt outstanding between the third and fourth quarters of 2019 represented a 2.0 percent increase. In dollar terms, agency and GSE portfolios and MBS saw the largest increase, at $16.1 billion (2.2 percent), in their holdings of multifamily mortgage debt. Commercial banks increased their holdings of multifamily mortgage debt by $6.7 billion (1.5 percent). CMBS, CDO and other ABS issues increased holdings by 9.5 percent to $4.1 billion. Private pension funds saw the largest decline (7.2 percent) in their holdings, by $65 million.

In percentage terms, REITs recorded the largest increase in holdings of multifamily mortgages (23.9 percent), and private pension funds saw the biggest decrease (7.2 percent).

CHANGES IN COMMERCIAL/MULTIFAMILY MORTGAGE DEBT OUTSTANDING DURING 2019

Between December 2018 and December 2019, commercial banks saw the largest gain (6.1 percent) in dollar terms in their holdings of commercial/multifamily mortgage debt – an increase of $82 billion. State and local government decreased their holdings of commercial/multifamily mortgages by $1.5 billion (1.4 percent).

In percentage terms, finance companies saw the largest increase (14.9 percent) in their holdings of commercial/multifamily mortgages, and state and local government retirement funds saw the largest decrease (3.3 percent).

CHANGES IN MULTIFAMILY MORTGAGE DEBT OUTSTANDING DURING 2019

The $116.7 billion rise in multifamily mortgage debt outstanding during 2019 represents an 8.2 percent increase. In dollar terms, agency and GSE portfolios and MBS saw the largest increase in their holdings of multifamily mortgage debt at 10 percent ($69.2 billion). State and local government saw the largest decrease in their holdings down $1.3 billion (1.4 percent).

In percentage terms, REITs recorded the largest increase in their holdings of multifamily mortgages, 52 percent, while private pension funds saw the largest decrease, 24 percent.

The report’s analysis is based on data from the Federal Reserve Board’s Financial Accounts of the United States, the Federal Deposit Insurance Corporation’s Quarterly Banking Profile, and data from Wells Fargo Securities.