Are Banks Lending for CRE Yet?

For the past few years many banks' appetites for lending money for commercial real estate (CRE) has been suppressed, at best.  But over the past few months there has been a shift in direction for many lenders, as banks have been strengthening their balance sheets, interest rates have remained historically low and economic news has been more positive.

Yield hungry Life Insurance companies are increasing their lending in 2012 for larger commercial real estate deals.  Private Commercial Mortgage-Backed Security loans (CMBS) are also seeing an up rise in activity from very low volumes over the past three years.  Lastly, Community banks are looking for ways to make money on cash reserves and many have ventured back into the commercial loan market.  The prevailing reason for this activity? Yields on commercial real estate are higher than other investments and interest rates are predicted to remain low for the next 5 years.

On a local level, there are a number of banks that are aggressively looking for solid lending opportunities.  Bankers from two local banks, First Financial Bank & Honor State Bank, recently asked me out to lunch to tell me about opportunities that exist with their banks and about some deals they have funded lately.  These local banks are aggressively looking for deals that meet their lending criteria and will consider special incentives like 7 year balloon payments (instead of the typical 5 years) and low fixed rate loans, in order to woo borrowers.
So what are the local banks looking for in order to finance a property?  For the borrower, they are looking at someone with solid financials, good credit and a good payment history.  For investment properties, they are looking for properties with good cash flow, low debt service to income ratios, leases at current market rents and good loan to value ratios.  For an owner occupied building they are going to focus on the financials of the company using the building, the company’s ability  to service the debt and the loan to value of the building.  Traditionally these have been safer loans for the local banks as they don't have to worry about tenants leaving, down-sizing or asking for rent reductions.

All this points to good signs for Buyers, Banks & the economy as we return to a more normal lending environment, and correspondingly, an uptick in activity for commercial real estate sales.

-Dan Stiebel, CCIM

Dan Stiebel

Dan Stiebel

Associate Broker
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