Part of the fallout from the last housing crisis was a sudden tightening of the credit market as banks and other lenders who had previously loosened their lending standards quickly reversed course and tightened them in an effort to avoid lending funds to parties that might default on them later. However, since the end of the crisis, the economy has improved significantly leading some banks to make changes to their lending standards once again.
Details on Real Estate Lending
According to the Federal Reserve’s most recent Senior Loan Officer Survey, banks are taking different paths when it comes to residential real estate loans and commercial real estate loans. For example, even though the economy has improved markedly during the last few years, many banks have remained cautious when issuing loans for residential mortgages and their hesitancy in this area has allowed non-bank lenders to step into this space and increase their market share. For example, the number of mortgages that were made by specialized mortgage companies increased from 11 percent during the first half of 2012, to 17% during the first half of 2013, to 23 percent during the first half of 2014. However, while banks have remained cautious when dealing with residential mortgages, they have taken a different approach with commercial real estate (CRE) loans
According to the Fed’s Survey, during the last few months, banks across the country have loosened their lending standards for commercial real estate, and construction and land development loans. This has benefited the senior housing market by making it easier for providers, investors, and developers to obtain capital which they have used to build new communities in underserved areas across the country. One of the reasons that banks have relaxed their lending standards on these types of loans is because demand for them has increased as the economy has improved. A second reason is that economic growth has also reduced the default risk on these types of loans, and finally, some banks have reduced their lending standards on CRE and construction and land development loans in order to compete more aggressively with other lenders who are also in the market for them.
Lastly, the Survey also found that a modest number of banks have recently taken steps to address increased competition for commercial and industrial, or C&I loans. Specifically, these banks have relaxed their lending standards for C&I loans, eased the pricing terms on these loans, lowered the fees they charge for credit lines on these loans, reduced the interest rate floor that they set on these loans and also lowered the premiums that they charge for riskier C&I loans.
The Fed’s Survey makes it clear that the borrowing environment for CRE and C&I loans has improved considerably since the days of the housing crisis. Before the Federal Reserve raises interest rates next year as it is projected to do, senior housing participants who wish to take advantage of today’s favorable borrowing climate should contact Cambridge Realty Capital to learn more about the many different types of financing options that it offers for acquisitions, joint ventures, sale/leasebacks and other purposes as well.
