Banks’ reengagement with commercial real estate investors showed no signs of a slowdown in the third quarter, according to an analysis of lending market data.
Sam Chandan, president and chief economist at Chandan Economics, said his research into third-quarter data found more banks lending in more places against a widening range of income-producing commercial real estate properties. Delinquency and default rates are also declining, due to fresh mortgages diluting the shrinking pool of banks’ legacy debt.
According to Chandan’s research, 71 percent of national and regional banks with significant commercial real estate exposure increased net lending in the last year. In the second quarter, banks’ net exposure to commercial real estate loans increased by $18 billion, the second-best showing since 2008.
Chandan noted, however, that as more banks are lending to a wider range of borrowers, the resulting competition is having a knock-on effect on underwriting standards. “There are more people in this market right now, and that is having a definite impact on what we see happening with underwriting standards,” Chandan said.
Meanwhile, data show that there are more lenders in small-balance parts of the market, according to Chandan, as well as in secondary and tertiary markets where there are well-qualified borrowers who have been unable to access the borrowing markets.
Chandan said survey data that his firm has collected with the Real Estate Lenders Association show that the number of respondents who plan to increase their loan commitments in the next 12 months far outnumber those who plan to lower them. “There are more loans being made, but there are more lenders out there, so you’ve got to be fairly competitive,” he said.
Increased lender density will be partly offset by an increase in the number of well-qualified borrowers, he added.
10/04/2013
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Sarah Borchersen-Keto