Commercial mortgage outlook turns positive in 2Q 2021

Amid lingering industry concerns, growth in commercial and multi-family mortgage activity is improving the outlook for the market next year, according to the CRE Finance Council.

The group’s confidence index reached its highest level, 119.2, in the second quarter, against 118.7 in the first quarter and 84.4 a year ago. The survey began with a baseline of 100 in the fourth quarter of 2017.

A high share of 83% of members of the Board of Governors declared themselves positive towards CRE’s activities over the next 12 months, increasing from 72% per quarter to 21% per year. Simultaneously, 58% expressed positivity around the surrounding CRE environment over the next year, roughly matching 59% in the first quarter while nearly quadrupling the 15% from the previous year.

88% of respondents said their commercial lending programs were operating at full capacity, with 7% partially operational and 5% accepting no new business. These fell from 71%, 24% and 6% in the first quarter to 34%, 54% and 11% year-on-year. Additionally, 31% said they saw more trading volume in the second quarter than before the pandemic began.

Other industry analysis aligns with the increasingly positive picture. the Mortgage Bankers Association forecast that commercial and multi-family loans would reach $486 billion in 2021 and $539 billion in 2022 after 2020 brought in $440 billion.

“As restrictions are lifted in states across the country and the economy reopens, we hope for a strong recovery with investors eager to get off the sidelines,” CREFC executive director Lisa Pendergast said in a statement. hurry.

However, a growing negative outlook surrounds government policy and regulation. A 30% share anticipates policies to restrict CRE funding over the next 12 months, compared to 13% per quarter and 15% per year. Any changes, including a LIBOR transition, reform state-sponsored enterprisesand alignment with the Community Reinvestment Act or increased environmental, social and governance requirements, could discourage investment.

“For example, an exchange of like-kind real estate under Section 1031 allows borrowers to defer tax recognition when selling a property to buy a similar property. Deferred tax treatment is a major driver of transactions and its interruption could further weigh on the CRE sector as it attempts to recover from the pandemic,” a CREFC representative told NMN.

Although not all CRE segments are held equally. The trade association has ranked retail businesses as the most concerning following the coronavirus, followed by offices and hotels. Lesser concerns abound for the industrial sector, with multifamily to come next.

“Retail and hospitality remain the most stressed in the economic wake of the pandemic, and the survey indicated concerns about office performance post-COVIDsaid Eric Thompson, Chairman-Elect of the CREFC Board of Governors. “However, foreclosed assets and REO remained relatively low, and at levels well below expected at the start of the crisis.

Worries about CRE loan distress appear to have faded since the start of the pandemic. The latest poll results showed 90% think commercial lending will do better than it did coming out of the global financial crash of 2008 and 5% worse, compared to 91% and 9% in the first quarter and 31% and 54% in June 2020. .

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