On a scale of 1 to 10, respondents rated local and regional banks as the most significant source of capital for the commercial real estate sector at a 6.8—a place those institutions have held in every year of the survey. That segment was followed by national banks at 6.6 and institutional lenders at 6.0. The ratings for all three sectors were about 0.2 points greater than in last year’s survey.
For nearly every category of lender, ratings were the highest in the four years of conducting the research. The most significant year-over-year jumps in this year’s edition came for Fannie Mae/Freddie Mac and for CMBS, which each leaped 0.5 points (to 5.7 and 5.5, respectively.)
Looking ahead, respondents expect production in the next 12 months to be stable for all financing sources. For all sources, between 45 percent and 60 percent of respondents said the volume of debt capital would be flat.
The lenders respondents expect might grow volumes the most are institutional lenders. In all, 37.0 percent of respondents said institutional lenders would grow volume “somewhat” (31.8 percent) or “significantly” (5.2 percent). Life insurance companies (29.5 percent) and REITs (29.0 percent) were also identified as lenders that might grow volumes. On the flip side, national banks (28.7 percent), CMBS lenders (25.7 percent) and local/regional banks (25.5 percent) were most frequently named as likely to provide less capital in the next 12 months.
But some recent data suggested that the system may be more exposed to commercial real estate risk than it seems. CrediFi published a report in June that pointed to high levels of lending to “more opaque” property sectors, including retail and industrial. In addition, the report noted potential risks from out-of-norm lending by banks that occasionally take on loans that are outsized or out-of-character for them.
CrediFi CEO Ely Razin told NREI in June, “We did not issue this report to say all bank lending is problematic. It’s absolutely not. However, certain areas of lending, and certain institutions, are taking on more risk and we are simply calling this out.”
In a response to open-ended questions about concerns in the sector, one reader added, “The increasing capital available from alternative lenders may erode lending standards for borrowers willing to take on excess leverage to juice returns.”