Tuesday, February 1, 2011

U.S. CRE Lending Conditions Continue to Normalize


The Federal Reserve Board's Senior Loan Officiers Survey of Bank Lending Practices taken in January continued to show improving conditions in commercial real estate lending conditions.  The summary of the survey reported:    
  • "Domestic respondents reported no net change in standards on CRE loans in the fourth quarter, though a few foreign institutions reported having tightened standards. Roughly 20 percent of banks, on net, indicated that they had reduced the sizes of lines of credit for commercial construction, about the same as in the previous survey. About 10 percent of domestic banks, on net, reported increased demand for CRE loans, the strongest reading since early 2006. Foreign banks also reported that demand had strengthened, on net.
  • In response to a special question that has been repeated on an annual basis since 2001, domestic banks indicated that they had tightened some terms on CRE loans over 2010. However, the tightening was less widespread than that reported in 2009, and almost no banks reported having tightened terms considerably. About 40 percent of domestic banks, on net, reported having tightened loan-to-value ratios, and moderately smaller fractions tightened debt service coverage ratios and maximum loan sizes. Spreads, maximum maturities, and requirements for takeout financing were reportedly little changed on net. Moderate net fractions of foreign banks indicated that they had eased some terms, including maximum loan sizes, spreads, and requirements on debt-service coverage ratios."
The chart below shows the trends in the share of lending officer respondents indicating that their institution was tightening its CRE standards.  In January, the percentage was 0.0 percent--which shows a normalization after a five-year tightening cycle. The survey also reported that CRE demand for loans strengthened in January to its highest point since the fourth quarter of 2005.