Commercial Mortgage Debt Grew by $324B in 2022

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Good morning. A report by the Mortgage Bankers Association (MBA) found that commercial and multifamily mortgage debt grew by a staggering $324B last year, the second biggest annual bump since 2007. Meanwhile, the fight continues to bring more housing to NYC’s suburbs.

Today’s edition is brought to you by Bullpen, a talent network that connects CRE companies with pre-vetted experts for on-demand, contract work.

MBA: Commercial Mortgage Debt Grew by $324B in 2022

A report from the Mortgage Bankers Association (MBA) uncovered that commercial and multifamily debt outstanding rose 7.7% to $324B by the end of 2022, the second-biggest annual spike since 2007. Growth in multifamily mortgage balances accounted for almost half of the annual increase, too.

The numbers: The latest report from the MBA reveals that the total combined debt for commercial and multifamily properties reached $4.5T by the end of Q4 2022, showing a YoY increase of 7.7%. Furthermore, the report indicates that in the fourth quarter alone, the combined commercial and multifamily debt rose by $77.9B, representing a 1.7% increase on a quarterly basis.

Honing in on multifamily: Similar to previous years, commercial bank and thrift institutions held the majority of total outstanding commercial and multifamily debt, accounting for 38.6% or $1.7 trillion at the end of 2022. These depositories experienced an increase of almost 12% in their outstanding loans compared to the previous year.

Leading the pack: REITs own 4% of the total outstanding commercial and multifamily debt, and they experienced the most significant yearly increase in market share of commercial debt at 25.8%. Among the major investor groups, no other group saw an annual growth rate exceeding 12%.

➥ THE TAKEAWAY

High tide: MBA’s report has a lot of numbers to sift through, but one thing is clear—debt is on the rise no matter how you look at it. The increase in multifamily mortgage debt is particularly noteworthy, as it accounted for almost half of the annual increase. This could suggest a potential oversupply in the multifamily market, which could lead to lower rental rates and potentially lower property values.

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The Half-Century Fight For More NYC Suburban Housing

NY Governor Kathy Hochul isn’t winning popularity points with fellow New Yorkers. Building more multifamily and affordable housing in NY suburbs has always been a challenge, but the Governor is proposing to change that by bypassing municipalities to get approval from the state in certain circumstances.

The ultimatum: According to Ms. Hochul’s aides, NYC suburbs aren’t keeping up with the city’s new unit construction rate. Her proposal includes a mandate for downstate municipalities to increase their housing stock by 3% over 3 years. If they don’t comply, a new state board would approve multifamily developments that don’t pose a risk to health and safety.

Challenged to a duel: Proposal supporters and opponents held dueling rallies this week where opponents claimed the state would erode local control and upset the character of the towns. They believe more development would lead to more traffic and less access to water and sewer services. Advocates of more housing, on the other hand, said it’s almost impossible to move to Long Island these days due to the lack of options and high housing costs.

Out of touch: Pilar Moya-Mancera, executive director of the nonprofit group Housing Help Inc., supports the governor’s plan “because the local politicians from Long Island continue to ignore the housing needs of their own constituents.” Housing Help is the group behind Matinecock Court, an affordable housing project that has finally been approved after a 45-year slogfest. She’s hopeful the next project won’t take nearly as long to get approved.

➥ THE TAKEAWAY

Solution-oriented: Long Island has long lagged behind the five boroughs and areas of northern NJ in permitting new housing units, which has contributed to rising costs and rents. The Governor’s hope is that NY will follow in the footsteps of San Francisco and Boston, which both enacted laws to combat their respective housing shortages. Governor Horchul wants to be part of the solution and will likely continue to fight tooth-and-nail for her zoning plans.

• The Fed: Experts foresee CRE lending relief with no near-future rate hikes due to bank deposit issues and inflation moderation, but credit tightening may hinder refinancing.

• Jet lag: According to Harvard Business School, colleagues in different time zones benefit the most from meeting in person.

• Slow the pace: US apartment sales are on track to have their slowest quarter in over a decade.

• Sexy storage: Industrial outdoor storage is all the rage, but investors should be wary of the pitfalls of being inexperienced operators.

• All shook up: An elevator malfunction at a 93-story skyscraper in Midtown Manhattan gave office workers the shakes recently.

• A tale of two neighborhoods: Union Square and SoHo have two very different post-COVID recovery stories (guess which one is better off today).

• Space for lease: As demand for retail space continues to rise, availability for retail space reached its lowest level on record.

• Delisting dangers: Brookfield’s DTLA Office-Focused Fund (DTLA) is at risk of delisting after the stock dropped to $1.32/share.

• Confidence building: Homebuilders are feeling more confident as industry conditions improve and single-family housing starts are picking back up.

• Office outlook: Credit Suisse (CB), Signature Bank (SB), and First Republic Bank (FRC) occupied over 2 MSF of office space in NYC, leading some to wonder how their collapses will impact the office market.

• Bubble or bust? Uncertainty around CRE lending is bubbling up as borrowers fear banks will start pulling back.

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