According to the Mortgage Bankers Association, the U.S. commercial real estate market is facing an unprecedented period of transition.
Changes in property fundamentals, interest rates, property values, and more have led to a marked slowdown in transaction activity - with Q1 2023 sales activity down 56 percent from a year earlier.
THe MBA's newly released Q1 commercial mortgage delinquency survey showed a 110-basis point increase in 30+ delinquency rates for office property loans. The Federal Reserve Board's last Senior Loan Officer Opinion Survey (from January - before the recent focus on banks) recorded a net 58 percent of respondents tightening underwriting standards for commercial mortgages and 57 percent for multifamily mortgages. There is no doubt commercial real estate markets are experiencing a transition.
But two questions have recently dominated the commercial real estate headlines of late: a) the reliance of banks on commercial real estate and b) the reliance of commercial real estate on banks.
Out of $4.5 trillion of commercial and multifamily mortgage debt outstanding, multifamily accounts for nearly half - $2 trillion - followed by office - at $750 billion or 17 percent of the total.
Of that $750 billion of office-backed mortgages, the MBA estimates that $339 billion is held by banks. That is 45 percent of all office-backed loans, 20 percent of all bank-held commercial and multifamily mortgages, and 8 percent of all commercial and multifamily mortgages.
Of that $339 billion of bank-held office-backed mortgages, $98 billion matures in 2023. That is 29 percent of all bank-held office-backed loans, 13 percent of all office-backed loans, 6 percent of all bank-held commercial and multifamily mortgages, and 2 percent of all commercial and multifamily mortgages.