Federal regulator warns CRE lenders of dreaded “froth” in apartment market

Underwriting standards have eased due to high-level of competition

TRD New York /
May.May 17, 2016 02:09 PM

Banks should be more careful about issuing commercial real estate loans, according to federal regulators.

The Office of the Comptroller of Currency is urging banks to strengthen loan terms to property developers.

Comptroller Thomas Curry told a wire service that frothy apartment markets in New York, Boston, San Francisco and Washington D.C. are putting lenders at risk.

His office, which regulates national banks, has been sounding the alarm for some time now.

The office issued a statement at the end of last year warning financial institutions to exercise “prudent risk-management practices” when it comes to commercial real estate lending, in light of increased competition and an easing of underwriting standards, Reuters reported.

“The actual loan terms and covenants are weakening,” he said. “We are keeping a watchful eye. We don’t necessarily expect to have the bottom fall out as it did in other areas during the recession.”

The warning comes as traditional lenders pull back from construction lending, especially luxury condominium projects. In November, The Real Deal ranked New York City’s biggest real estate lenders. New York Community Bank topped the list with $8.9 billion in loans originated from the first quarter of 2014 to the second quarter of 2015. [Reuters] — Kathryn Brenzel

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