Michael Chase - NorthMarq Capital

The final numbers have yet to be tallied, but from what we know so far, 2016 was a banner year for the commercial and multifamily mortgage market. In November the Mortgage Bankers Association (MBA) projected total commercial and multifamily mortgage originations to total $515 billion for the year, which would be record eclipsing the previous high of $507.7 billion in 2007. Fannie Mae and Freddie Mac have both reported record origination volumes of $55.3 billion and $56.8 billion respectively. The top 30 life insurance companies originated $76.2 billion, and after a slow start CMBS Lenders were able to put in a final year-end kick to finish with $68.3 billion. The dominant participants in 2016 were the commercial banks. According to the St. Louis FED, banks increased their real estate loan holdings by $230.3 billion in 2016, which does not include origination volumes needed to make up for portfolio runoff. In the end, the market was able to achieve record performance in the face of valuation concerns and new regulations effecting banks and CMBS lenders.

2017 is expected to be another strong year for the industry, primarily due to the amount of volume which will be required to refinance what remains from the peak origination year in 2007 as well as shorter term loans originated in later years. The MBA has estimated $208 billion in commercial and multifamily mortgages will be coming due in 2017. Even in the face of this next and largest wave of maturities which were scheduled from 2015 to 2017, the industry remains optimistic in regards to the availability of debt capital.

Expected areas for tightness in 2017 will come from financing requests for high leverage construction loans or for certain asset classes such as hotels. While the best projects and sponsors will still be able to find capital, the current lending environment may cause some owners and developers to rethink their business plans or delay projects until better financing becomes available. This could also open up opportunities for mortgage REITS and private wealth funds, which could make 2017 the year of alternative capital sources.

The two areas of uncertainty hanging over the industry are what will happen with interest rates and what will be the impact of the new administration. While there was some initial shock over the rapid rise in interest rates following the presidential election, most lenders did not have to significantly react as it occurred towards the end of the year when allocations had already been met. Even though expectations are the FED will make additional rate movements, it is important to keep in mind that the rate index is only one part of the overall mortgage rate. As lenders set new goals and allocations for 2017, a competitive lending environment, combined with a lack of attractive alternative investments, may help to tighten spreads and keep mortgage rates from moving too dramatically.  Even more uncertainty surrounds the potential impact of new administration, which could be both positive and negative. On one hand regulations which have been burdensome and capital constraining could be eased, while on the other hand tax reform could have unknown consequences. No matter what is on the administration’s agenda, it will likely take some time before policy changes can be enacted.

Michael Chase is a senior vice president/production with NorthMarq Capital, Boston.