WASHINGTON, DC—The commercial real estate lender community shows no signs of scaling back its appetite for business, according to the Fall 2014 survey of Commercial Real Estate Lender Sentiment, a report issued by the Real Estate Lenders Association and Chandan Economics. In fact certain providers, such as CMBS lenders and life companies are expected to grow their market share – and that growth will most likely come at the expense of national and foreign banks, as well as relatively slower growth in agency lending.
There are several implications to these trends, Sam Chandan, CEO of Chandan Economics tells GlobeSt.com. One, the increasingly competitive environment leaves lenders little room to push the envelope much further. Two, the envelope is being pushed as much as possible, which, means loosening underwriting standards.
There is a caveat to that latter point, however. The survey did find that most lenders do not see much more room for easing multifamily credit standards or growth in multifamily lending volume. In fact the net share of survey respondents expecting looser underwriting for apartments has fallen to just 4%, down from 9% in the Spring 2014 survey. Fewer than 20% expect to grow apartment volume.
Briefly, a word about the survey: the RELA—Chandan Survey of Commercial Real Estate Lender Sentiment reports on lenders’ expectations for mortgage origination volume, underwriting standards, and loan pricing in the US multifamily and commercial property sectors†. The quarterly survey is administered to the members of the Real Estate Lenders Association (RELA), including domestic and foreign banks, life companies, agency lenders, CMBS conduit lenders, and private and other non-bank lenders.
Other findings from the survey:
Winners and losers in the fight for market share. The overwhelming majority of respondents expect that conduit lenders will grow their commercial real estate lending market share over the next year. Also, life companies and private and other non-bank lenders are also expected to capture larger shares of the overall market. In the case of life companies, the results may reflect the multiple platforms of the largest market participants, including balance sheet lending, CMBS lending, and agency and FHA lending. National banks are not expected to fare as well in the competitive environment, though the outlook is more favorable for regional and community banks. Expectations for foreign banks are mixed. Although the net share of respondents anticipating a higher foreign bank market share was higher than for national banks, a relatively larger minority of all lenders (23%) expects foreign banks will see their market share decline.
Industrial reigns. The net share of lenders expecting to increase their volume in the industrial sector edged up to 48% in the Fall 2014 survey, up from 46% in the prior report. That contrasts with the apartment sector, where a crowded marketplace for financing and slowing growth in total activity has nearly a third of lenders anticipating a decline in their production over the next year. The outlook for hotel lending remains exceptionally reserved.
The pool of borrowers grows. Respondents anticipate continued growth in the pool of borrowers satisfying credit standards. The net share of lenders expecting an increase in borrower demand for term loans jumped to 37% in the Fall 2014 survey, up from 28% in the prior report. The outlook for construction loan demand is more reserved but still positive.
Easing underwriting standards. Lenders anticipate that underwriting standards will ease for office and industrial properties. In the case of the hotel sector, lenders see easing standards even though the outlook for volume is flat. As stated earlier, the net share of lenders expecting further easing in the sector declined to just 4%, down sharply from 43% in early 2013.
Pricing falls. Lenders are expecting further decreases in market pricing, particularly for term loans. Across term and construction loans, the net share of respondents anticipating a decrease in market pricing was 35%, up from 27% in the Spring 2014 survey.
