Banks Move Carefully Back Into Commercial Real Estate Lending
For the first time in five years, a majority of banks are considering growing their loan portfolio due to improving conditions in just about all sectors of the economy.
There’s neither an overwhelming consensus nor a large gain in activity, but most banks feel that they are through the worst of the write downs and are ready to return to CRE lending. They think that five years has been long enough to work through most of the trouble related to commercial real estate and that the segment represents a great potential for earnings growth.
“We’re beginning to see opportunity in the marketplace in select markets, and in particular asset classes,” said William H. Rogers, Jr., president and CEO SunTrust Banks Inc. “We transitioned this business back into production mode, and we believe there is good future potential here. As with our other non-housing related exposures, our commercial-oriented real estate businesses have also performed relatively well through the cycle.”
The question of how much growth there is in commercial real estate is one Regions Financial Corp. executives said they revisit each month.
“Things are getting better, quite frankly, in that space [investor real estate]. But I think part of it is, perhaps the survivor bias. Those that have lasted this long are able to last a little bit longer, and they are hanging on to better days,” said Barb Godin, executive vice president and chief credit officer of Regions Financial Corp. “I think, we saw the early (sell-down), and that has been a lot of what we have seen in the last couple of years, in terms of our charge-offs, or things moving to criticize classified. But again, we are seeing just an overall improvement in that sector right now.”
Up until fourth quarter of 2011 problem commercial real estate loans were still on the increase, and still increasing, but the rate of increase is moderating.
“Because the financial condition of many of our borrowers has suffered over the last several years, we expect to continue to see downgrades within the portfolio into an extended recovery as a play,” said Daryl D. Moore, executive vice president and chief credit officer of Old National Bancorp. “This will be especially true in the commercial real estate portfolio where capital and liquidity continued to be an issue for many of our clients.”
No question that the banks on the trip back into increasing CRE activity will be filled with caution, but the timing couldn’t be better for investors who financed at the peak of the market five years ago. As production ramps up investors will see more competitive pricing and terms providing some relief to borrowers whose loans mature in the next year or so.
While it is apparent that the growth in commercial real estate lending will be limited and cautious, the timing for an improved lending environment couldn’t be better for some investors who financed at the peak of the market five years ago. As mortgage production ramps up, investors will see banks being more competitive on pricing.
CoStar News – Article – No More Fear and Loathing of CRE Lending for Banks