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Get out the economic anxiety blankets: Banks nationwide, by a big margin in some cases, are slowing down commercial real estate lending in most property categories, according to a CoStar Group report.
In the analysis, which includes Mortgage Bankers Association data from the 2018 third quarter, CoStar reports banks are getting “squeezed between rising interest rates and competing nonbank lenders” that dangle low-cost loans to expand market share. “It's the first sign of a slowdown in real estate lending by banks this year following the end of an extended period of ultra-low interest rates,” the report states.
The sectors that dropped off the most, in a year-over-year analysis, include four of the biggest property types: hotels, retail, health care and office.
On the flip side, third quarter bright spots in loans include multifamily — the sector that just keeps on chugging — and industrial. Loan originations, according to the report, from banks and government sponsored enterprises, increased 19% year-over-year for both multifamily and industrial property loans in the third quarter.
The lending slowdown was particularly acute with big banks. Half of the 10 largest U.S. banks by commercial real estate loan holdings, for example, posted portfolio drops in the quarter. The largest bank nationally in commercial property loans, Wells Fargo, recorded a drop of $2.7 billion from the previous quarter, the report adds.
"While [overall bank] results this quarter were positive,” says Federal Deposit Insurance Corp. Chairwoman Jelena McWilliams, in announcing third-quarter performance numbers for FDIC-insured banks in late November, “the extended period of low interest rates and an increasingly competitive lending environment have led some institutions to 'reach for yield.’”
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