"Supply & Demand for Commercial RE Loans"

Banks are slowly ramping up their commercial real estate lending according to the Federal Reserve’s quarterly Senior Loan Officer Opinion Survey on Bank Lending Practices. In the recently released April survey, 5.5 percent of respondents said their banks eased standards for CRE loans in the prior three months, the first such loosening of bank credit since the fourth quarter of 2005. Nearly 35 percent reported stronger demand for CRE loans from creditworthy borrowers, the largest quarterly jump in 13 years. Banks aren’t out of the woods yet, however. The outstanding volume of bank CRE loans, at levels last seen in late 2006, continues to fall as the increase in REO properties outpaces the issuance of new loans. The FDIC reports that 40 banks have failed year-to-date compared with 72 through the first five months of 2010. Most of these are smaller community banks, and many were laid low by imprudent commercial real estate lending during the bubble years. Nearly 40 percent of all loans at small domestic banks are in commercial real estate versus just 14 percent at large domestic banks according to an analysis of Federal Reserve data. Overall, capital availability is increasing for commercial real estate across most sources of debt and equity. Although prices have moved higher for core assets in primary, supply-constrained markets, pricing for slightly riskier assets (older, more vacant space, secondary location, etc.) remains low, tempting investors and lenders with visions of buying low now and selling high down the road when the market fully recovers.

Source: Federal Reserve, Senior Loan Officer Opinion Survey