MBA CREF 2023: CRE Loans Benefiting From Prior Value Spike Amid Headwinds 


A previous sharp rise in commercial real estate values that predated headwinds spurred by the COVID-19 pandemic and rising interest rates provides cushion for some loans set to mature in the near future.

Jamie Woodwell, vice president of CRE research & economics at the Mortgage Bankers Association, put recent declining valuations in context Monday afternoon in San Diego at the MBA’s Commercial/Multifamily Finance Convention and Expo, known as MBA CREF 2023. Woodwell noted that commercial real estate values 10 years ago were at 45 percent of what they are today. CRE values were 67 percent of what they are today for loans issued five years ago, and 81 percent for debt sold in 2021. 

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Real Capital Analytics data has shown about a 4 percent dip in property values across all asset types since the July 2022 peak as the Federal Reserve began to aggressively hike interest rates to fight inflation.

“There’s been an awful lot of appreciation that is built into those values,” said Woodwell during the MBA’s CREF Market Outlook session at the Manchester Grand Hyatt San Diego. “So when we think about if values are declining, were they declining to get to the point where there isn’t still positive equity in that deal when it was made? That is going to be a key thing to focus on going forward.”

The session also included Reggie Booker, associate vice president of commercial/multifamily research at the MBA, and Mike Fratantoni, the MBA’s chief economist.

Booker noted that 24 percent of all CRE loans are scheduled to mature in 2023 and 2024. Twenty percent of the debt scheduled to mature this year is in the office sector, which Booker said will create challenges for those property owners given uncertainties with increased hybrid working trends. About a third of all outstanding loans are floating-rate debt, according to MBA data.

Woodwell said MBA is forecasting a 15 percent drop in CRE lending this year to around $684 million, followed by a 32 percent jump in 2024 as market participants gain more clarity on interest rates and valuations. The MBA is then projecting a 7 percent origination increase for 2025 from 2024 levels up to $971 million.

While rising interest rates have created headwinds for CRE origination volume in 2023, construction loans are starting to improve as material costs and shortages in place during much of the pandemic stabilizes, according to Kimberly Taynton, vice president at Bellwether Enterprise Real Estate Capital. Tayton said her firm is back to sizing up some construction deals at 85 percent loan-to-cost on some transactions. 

Patrick Crandall, executive vice president in the national lending division of Pacific Western Bank, cautioned that developers often do not account for today’s increased borrowing costs with their land basis often tied to a very different market environment. 

“I think the deals that are getting done today are deals that have historic land bases that make sense,” said Crandall during Monday’s “Construction Lending: What Is Today’s Steady Stack?” CREF session. “They’re very well-capitalized sponsors in a market that still is showing population migration, job growth and rent growth.” 

The construction lending session also featured Chris Robbins, managing principal at GreenRock Capital, and Tommy Nance, director at PGIM Real Estate. The panel was moderated by Lonnie Hendry, senior vice president and head of CRE & Advisory at Trepp.

The MBA’s annual CREF conference has featured large crowds with 2,700 registered attendees, which surpasses the 2,260 last year. Those who made the trip to Southern California have enjoyed relatively cool weather for San Diego, with highs in the 50s and low 60s and some rain sprinkled in Sunday evening after the conclusion of Super Bowl LVII. The four-day event kicked off with a Super Bowl tailgate party featuring former San Diego Chargers tight end Antonio Gates.  

Andrew Coen can be reached at