According to a recent report from the CoStar Group, banks have picked up their lending activity to commercial real estate in recent months – a sign the slow-but-steady economic recovery is beginning to pick up steam.
The report says banks that are lending again see lower risk owner-occupied properties and multifamily properties as preferred targets. But with lenders focusing on the same ‘safe shelter’ property sectors, it is creating widespread competition for the better-quality borrowers in those areas. The real battle ground may be next year from the coming opportunities in construction and development lending.
“The area of lending that we see being the most competitive on pricing continues to be the commercial real estate arena, with a lot of players in and including the life insurance companies,” said Kirk W. Walters, senior executive vice president and CFO of People’s United Financial Inc., a bank holding company in Bridgeport, Connecticut.
Kelly S. King, chairman, CEO and president of BB&T Corp. in Winston-Salem, NC, told CoStar the competition is not yet so fierce that existing customers are getting picked off, but he did say banks are looking for more diversity as their own customer base is dwindling. Richard K. Davis, chairman, president and CEO of U.S. Bancorp in Minneapolis, MN, told the website the two coasts are where the activity is most competitive. And Joseph Ficarola, chairman, president and CEO of New York Community Bancorp, said that his $42 billion holding company in Westbury, NY, is only targeting the best borrowers.
In its quarterly survey of senior loan officers, the Federal Reserve found that business lending, or commercial and industrial loans, was enjoying increased demand – and greater competition among banks. The Fed reported that this was the second consecutive survey in which reports of stronger demand for such loans by domestic banks outnumbered reports of weaker demand. Reflecting this, commercial loans at commercial banks in the U.S. have risen about 15% between March 2011 and April 18, according to Fed banking-industry data.
Within this loan study, The Fed says most domestic banks generally reported having eased their lending standards and having experienced stronger demand over the past three months. Standards on C&I loans to large and middle-market firms, and to small firms, were about unchanged. However, moderate to large net fractions of domestic banks eased many terms on C&I loans to firms of all sizes, with most indicating that they had done so in response to more aggressive competition from other banks or nonbank lenders.
Domestic banks also reported an increase in loan demand from firms of all sizes. In contrast, a small net fraction of foreign respondents again reported a tightening of their lending standards on C&I loans and a decrease in demand for such loans. A moderate net fraction of domestic banks reported having eased standards for commercial real estate (CRE) loans. As has been the case recently, significant net fractions of domestic banks reported that demand for CRE loans had strengthened. On net, foreign branches and agencies reported that standards and demand for CRE loans were little changed.