Bankers aren't calling it a comeback yet, but the industry is welcoming some positive signals from recent years in commercial home lending, which has been particularly hard hit by the COVID-19 pandemic.
On Tuesday, the Mortgage Bankers Association said it expects to close approximately $ 578 billion in commercial and multi-family home-secured loans in 2021, up 31% year over year and making up the $ 601 billion the year 2019 is approaching.
And last month, in a survey conducted by the Federal Reserve, no bank reported weaker demand for commercial home loans, while around 18% said demand was moderately stronger over the past three months.
"Things have recovered a little faster, although we are all a little concerned about the Delta variant," said Brian Stoffers, global president of debt and structured finance for commercial real estate company CBRE.
Last year, the pandemic-induced recession raised fears of a sharp decline in commercial real estate lending, particularly in the office, retail and hotel sectors.
In July 2020, more than half of the banks surveyed by the Fed said that demand for commercial real estate loans was moderate or significantly weaker than three months earlier. The more positive results a year later are a sign that the situation has stabilized, even if credit demand has not fully recovered to pre-pandemic levels.
During the conference calls on the results for the second quarter, executives at banks of all sizes gave cause for at least a little optimism. For example, JPMorgan Chase reported a slight increase in loans for apartment buildings.
Wells Fargo reported easing pressure on existing credit exposures, with unaccumulated office building loans down 42% from the first quarter.
"As the overall outlook for commercial real estate continued to improve, we continue to focus on the areas hardest hit by the pandemic," said Mike Santomassimo, Wells chief financial officer, during a call with analysts on July 14th.
The Zions Bancorp. Salt Lake City remains cautious, increasing its commercial real estate book by just 0.4% over the previous three months and 1% over the previous year. In the second quarter alone, however, the bank's construction loan portfolio increased by 5.4%.
In an example of the $ 87.2 billion wealth bank picking its spots, Zions CEO Harris Simmons told analysts last month that he expects "decent growth" from owner-occupied commercial real estate.
ServisFirst Bancshares of Birmingham, Alabama, reported a 17.3% increase in home loans compared to the previous quarter to more than $ 782 million. That growth was one of the bright spots in the commercial real estate business of the $ 13.2 billion asset bank.
"We have a number of projects underway where we anticipate significant draws and of course we expect line utilization to improve only due to the inflationary effects of higher prices for steel, lumber and many other commodities," said ServisFirst CEO Tom Broughton said during a call with analysts on July 19.
Most of the recent surge in commercial real estate lending appears to be with banks with assets between $ 10 billion and $ 100 billion, said Matt Anderson, managing director at Trepp, citing preliminary second-quarter data. Smaller banks, which had relatively high concentrations in the sector in the past, recovered more slowly, he said.
"In a way, it's a bullish indicator because medium to large banks are getting more aggressive and can affect the market as a whole, but when you add up the thousands of banks under $ 10 billion it's a little surprising that they haven't yet picked up, "said Anderson.
A recent survey of bankers conducted by IntraFi Network highlighted the squeamishness of smaller banks towards the broader real estate market, which could explain why they are more cautious on commercial real estate loans than their larger competitors. Commercial home loans will be used to finance the new build, but for banks with less than $ 1 billion in assets, about half of executives surveyed in July viewed the U.S. housing market as a serious risk.
Still, there are signs that home loans are paving the way for a broader commercial home loan recovery as home builders scramble to address the housing shortage, Anderson said.
"This is particularly interesting because building lending falls really sharply in typical cycles and then recovers again. So this time it didn't recede much, it just slowed down and tightened, "said Anderson.
No analyst or industry expert dared to guess when the CRE market could look more normal, especially as the delta variant continues to persist in much of the country. But right now, many in the industry are stressing the positives.
"The momentum is definitely picking up and we're seeing a strong look into the second half," said Stoffers.
source https://seapointrealtors.com/2021/08/11/banks-detect-hints-of-cre-recovery/
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