Like Led Zeppelin’s classic hit “Good Times Bad Times,” lenders and real estate owners experienced the ups and downs of 2020 in a variety of ways.
Along with owners of hotels and mall owners, conduit lenders were clearly on the bad times side of that riff.
Conduits make a business of originating loans, packaging them together and selling them as commercial mortgage-backed securities.
Like many industries, that business came to a screeching halt in March, but, unlike other real estate lenders, conduits never really rebounded for much of the year. In fact, volume for commercial mortgage-backed securities in 2020 was down some 43% from 2019.
The primary reason is commercial real estate didn’t change hands as rapidly in 2020 as in 2019. Investment sales of commercial real estate in the U.S. dropped 32% when compared to 2019, according to Real Capital Analytics, a New York-based commercial real estate data firm.
The other reason is hotel and retail properties are a tough sell for any lender. Loans backed by hotels make up 10.24% of all CMBS loans outstanding, while retail properties currently make up 14.46%, according to analytics firm Trepp LLC.
Even though 2020 was a bad year for loan volume in the conduit world, 2021 has many in the industry looking toward good times. A recent survey by Commercial Mortgage Alert shows 26 active conduit lenders collectively plan to put out almost twice the volume they did in 2020.