Following what is expected to be a record year of lending in 2019, commercial and multifamily mortgage originators anticipate 2020 to be another strong year. That is according to the Mortgage Bankers Association’s (MBA) 2020 Commercial Real Estate Finance (CREF) Outlook Survey.
Nearly two-thirds of the top commercial/multifamily firms (64 percent) polled expect originations to increase in 2020, with one-in-six (16 percent) expecting an overall increase of 5 percent or more across the entire market. When forecasting just their own firm’s originations, two-in-five (42 percent) expect to see an increase of 5 percent or more in lending in 2020.
“Buoyed by low interest rates, strong property markets and rising property values, commercial and multifamily mortgage banking firms expect a solid year in 2020,” said Jamie Woodwell, MBA’s Vice President Commercial Real Estate Research. “Most anticipate strong appetites from lenders and borrowers and expect overall levels of mortgage borrowing and lending to increase. That’s not to say there aren’t some challenges and headwinds firms are monitoring, including concern about changes in the demand for space, and issues like the adoption of CECL or the move away from LIBOR.”
Added Woodwell, “Overall, market leaders see an environment where there is more debt available than there are deals looking for debt, and expect 2020 should be slightly stronger than 2019.” Earlier this week, MBA released its latest CREF forecast, which revealed that commercial and multifamily mortgage bankers are expected to close a record $683 billion of loans backed by income-producing properties in 2020, a 9 percent increase from 2019’s anticipated record volume of $628 billion.
Highlights of MBA’s 2020 CREF Outlook Survey include:
- Lenders remain eager to make loans: All surveyed originators reported that in 2019, lenders had a “strong” or “very strong” appetite to make new loans, and all expect lenders’ appetite in 2020 to be “strong” or “very strong.”
- Borrowers are still eager to take out loans: 91 percent of originators reported that borrowers had “strong” or “very strong” appetites to take out new loans last year, and 80 percent expect borrowers’ appetites this year to be “strong” or “very strong.”
- A majority of originators expect the market to grow in 2020, with 16 percent expecting total market originations to increase 5 percent or more. Forty-two percent expect their own originations to increase by 5 percent or more.
- Loan returns are expected to remain muted and risks are expected to hold steady.
- Originators tend to expect there to be greater upward pressure (than downward) on interest and capitalization rates. Industrial cap rates are viewed as more likely to decline than are cap rates for other property types. Retail cap rates are viewed as the most likely to rise.
- Changes in long-term interest rates, new construction activity and the broader economy are seen by a majority of respondents as having potentially negative impacts on the markets in the coming year.
MBA’s 2020 CREF Outlook Survey was conducted between November 26, 2019 and December 20, 2019. The survey request was sent to leaders of 60 of the top commercial/multifamily mortgage origination firms, as determined by MBA’s 2018 Annual Origination Rankings Report. The survey had a response rate of 56 percent. Percentages shown are calculated based on applicable responses. Non-responses and “n.a.” responses are excluded from the percentage denominator.
Detailed survey results are available to MBA members at www.mba.org/crefresearch.