Commercial real estate lending plunged 56% last quarter as 'logjam' of uncertainty clogged the market
- Commercial real estate lending more than halved last quarter compared to the prior year.
- The MBA attributed the drop to a "logjam" of uncertainty that's freezing the market.
Commercial real estate lending more than halved last quarter, thanks to the "logjam" of uncertainty that's clogging the market, the Mortgage Bankers Association said on Tuesday.
In the first quarter, commercial real estate mortgage loans plunged 56% compared to a year ago, and loans dropped 42% from the fourth quarter.
Though lending activity typically dies down in the first quarter of the year, the latest figure marks the slowest pace since 2014, the MBA said.
"Uncertainty and volatility in regards to interest rates and property values, and supply demand imbalances for some property types, has led to a logjam in commercial real estate sales and financing markets," MBA's head of commercial real estate research Jamie Woodwell said in a statement.
Experts have been warning of trouble ahead in the commercial real estate market for months, due to a higher cost of borrowing and faltering demand for office buildings as work-from-home trends persist. Apartment buildings, which are typically grouped in with commercial real estate, have also suffered a drop in demand, with sales posting their largest drop since the 2008 financial crisis.
That's been exacerbated by recent banking turmoil. Small- to mid-sized regional lenders finance around 70% of all debt in the commercial real estate space, according to Bank of America, and banks will likely pull back on lending as they reassess the huge holes left in their balance sheets.
Meanwhile, there's nearly $450 billion in commercial real estate loans that's set to mature in 2023 and will need to be renegotiated. JPMorgan estimated around 20% of commercial real estate loans could default.
"As loans mature and adjustable-rate loans reset, we should start to get greater insights into where things stand," Woodwell said.