The boom in commercial real estate lending has been going on for several years, but plenty of lenders think it has yet to run its course.
A survey of top commercial and multifamily originators conducted by the Mortgage Bankers Association last month indicates that nearly two-thirds (63%) expect originations to increase in 2017, with one-quarter (26%) expecting an increase of 5% or more. A full half (50%) expect their own firm's originations to increase by 5% or more.
"Commercial mortgage bankers expect 2017 to carry-over much of the momentum from 2016," said Jamie Woodwell, MBA's vice president for commercial real estate research, said in a press release.
He said the survey “paints expectations of a strong, steady market in 2017.”
Lenders remain eager to make loans, though not quite as eager as last year: 77% report “strong” or “very strong” appetite to make new loans, while 96% reported that they had “strong” or “very strong” appetite in 2016.
Borrowers are also eager to take out loans this year: 69% of respondents expects borrower appetite to be “strong” or “very strong,” though that’s less than the 80% who reported that in 2016 borrowers had a “strong” or “very strong” appetite in 2016.
There are mixed views on how origination volumes may change for individual capital sources. Pluralities of originators believe that banks, Fannie Mae, Freddie Mac, the Federal Housing Administration, and lenders who originate loans to be securitized will see little or no change in origination volume. However, a plurality expects life insurance companies and pension funds to increase originations.
Loan risk is expected to increase slightly in 2017. More respondents characterized the loans made in 2016 as low risk than as high risk. In 2017, Just over half expect loans to be medium risk (53%), with the reminder evenly split between seeing higher and lower risk loans.
And just over half (52%) expect potential regulatory and legislative changes could be positive for the market. One-in-four respondents (28%) anticipate a neutral impact and one-in-five (20%) see potential negative impacts.
Among the top reasons cited for positive impacts were potential changes to Dodd-Frank rules – particularly risk retention – and a more positive economic climate. Among the reasons cited for negative impacts were uncertainties that could be caused by changing rules.