Thanks to the improving economy and stimulus measures taken by the Federal Reserve, commercial real estate lending has increased steadily since the end of the recession. For example, as-of March 31, the total amount of commercial real estate loans at domestic commercial and savings banks had increased by 1.67% since December 31, 2013 to $1.2 trillion. Furthermore, the number of commercial real estate loans at domestic commercial and savings banks at the end of the first quarter increased for the fifth straight quarter, to 15.16% from 14.98% at the end of December 2013. While lending is up, as we get further away from the recession, regulators have also worried that lenders would relax their standards and start granting loans to borrowers with poor or questionable credit. So far, there’s been no widespread evidence that this is happening and in fact, there is some evidence pointing in the opposite direction instead.
Recent Study Eases Worries
According to a study conducted by the research group SNL Financial, any worries about lenders issuing commercial real estate (CRE) loans to risky borrowers en masse is premature. SNL Financial defines CRE loansas construction and land development loans, loans secured by multifamily property, non-owner occupied nonfarm residential property loans, and loans for nonresidential nonfarm property secured by assets other than real estate. In 2006, regulators issued guidelines on CRE lending in order to give banks some additional guidance and to reduce excessive risk taking in the sector. These guidelines don’t limit the amount of lending that banks can do, but they do encourage banks to keep a close eye on their portfolios and to make sure that they have sufficient controls in place to guard against risky lending. One of the dangers regulators suggested banks guard against is having CRE concentration levels that are above 300% while also increasing their total CRE balances by more than 50% during the previous 36 months. Regulators advise banks that exceed these figures to strengthen their credit risk controls and stress test their portfolios regardless of whether or not the law requires them to. However, regulators should be pleased to learn that as-of March 31, there were only 28 companies that exceeded these thresholds. The fact that the number of companies that fell outside this criteria is so small can be attributed to an improving economy that is providing borrowers with more capital to make payments on their loans, and the current low interest rate environment that the Federal Reserve has helped foster through its quantitative easing program and by continuing to keep its benchmark federal funds rate at historic lows.
Because of today’s low interest rates and the increased willingness of financial institutions to grant loans due to the improving economy, this is a favorable time for senior living providers and investors to obtain inexpensive capital for growth, acquisitions, investments, or other needs. Accordingly, parties that are interested in obtaining financing for these or other purposes should contact the Chicago-based firm Cambridge Realty Capital to learn more about the many different financing options that it offers.
