US Banks to Tighten Commercial Real Estate Lending

Posted by Staff Reporter ( on May 06, 2016 10:58 AM EDT
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Vacancy Rates On Manhattan Commercial Space Rise Sharplymore big
NEW YORK - OCTOBER 09: A sign in a window advertises space for lease October 9, 2008 in New York City. Office vacancy rates have spiked to two-year highs with rates now 43 percent higher than a year ago, according to new figures from the real estate firm Cushman & Wakefield. (Photo : Spencer Platt/Getty Images)

After the recession in 2007, real estate market experienced a boom in the past years, with many high-rise luxury buildings erected in major cities in the United States. However, some say that there is a bubble forming in some parts of the country, which caused U.S. banks to be cautious about lending in the commercial property sector.

According to a report from Financial Times, executives of several banks have expressed their plans to introduce more stringent standards in commercial real estate lending, such as in issuing mortgage-backed securities for big apartments and office developments. Citing what Bank of America CEO Brian Moynihan said, banks are taking extra caution on CRE to protect what they have. Bank of America's portfolio in the commercial property sector amounts to $58 billion and the bank is the fifth-largest lender by asset in the country.

Financial Times noted that after experiencing a boost in the past years where the commercial real estate saw a 41 percent increase in banks' market shares in 2015 from the previous year's 34 percent, CRE is slowing down. Citing the data from Real Capital Analytics, the publication pointed out a 46 percent plunge in commercial real estate sales in February, such as offices, apartment blocks and hotels. Sales were down to $25.5 billion compared to a year earlier, which accounted for the biggest decline since 2008.

Meanwhile, some experts believe that the commercial real estate remains to be healthy despite signs of slowing down. While property values stopped appreciating and the number of deals declined, there are no signals that the market will collapse just like in 2007. The demand for new space hasn't outpaced the supply and so the market is pretty much balanced. Experts also expect that foreign investment in the sector will grow as big institutional investors including pension funds are increasing their portfolio, Charlotte Observer reported.

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