Commercial real estate lending standards tighten, but look up

Acquiring credit has been tough for a while with credit standards for commercial real estate loans tightening for 14 consecutive quarters, according to the Board of Governors of the Federal Reserve System’s April update of the senior loan officer opinion survey of bank lending practices.  

The report, based on changes in credit standards in the first quarter of 2009 from the fourth quarter of 2008, noted that 66 percent of domestic banks reported tightening commercial real estate lending standards in the first quarter.  

At the same time, 70 percent of domestic banks reported weaker demand for commercial mortgages this year. This is the largest share of banks reporting a weakening of demand for financing since the Fed’s survey began tracking commercial real estate lending.  

“We view the weakness in loan demand to be a function of the market’s reaching a cyclical low in transaction activity as well as a drop-off in demand for construction financing,” said Sam Chandan, president of Real Estate Economics. “The decline in new loan commitments over the course of the next quarter will follow from weak loan demand as much as from difficulty in accessing credit.”  

But the credit market is looking up.

“Following more than three years of tightening credit, the most current survey suggests that the tightening cycle may be in the initial stages of moderating,” Chandan said.

Michael Stoler is a columnist for The Real Deal and host of real estate programs “The Stoler Report” and “Building New York” on CUNY TV and on WEGTV in East Hampton. His radio show, “The Michael Stoler Real Estate Report,” airs on 1010 WINS on Saturdays and Sundays. Stoler is a director at Madison Realty Capital as well as an adjunct professor at NYU Real Estate Institute, and a former contributing editor and columnist for the New York Sun.