Eighty-two percent of banks plan to increase capital concentration in commercial real estate, according to the American Bankers Association’s first annual Commercial Real Estate Lending Survey. The banks cited strategic planning and demand as the biggest driver in growth. Nine percent of the surveyed banks have 300 percent or more capital concentration in CRE lending, and 19 percent reported 100 percent or more capital concentration in construction lending. According to the survey, multifamily, office and retail represent the most active types of CRE lending.
“The CRE market is seeing both an increase in demand and management decisions to grow CRE exposures,” said Robert Davis, executive vice president, mortgage markets, financial management and public policy. “As the market expands, it’s not surprising that regulators are focusing on more guidance and oversight.”
Thirty-five percent of respondents said demand is higher than one year ago. Other market characteristics – including capital rates, underwriting standards, interest rates and liquidity – have remained largely unchanged since last year, according to the survey.
Due to the high level of demand, most of the 136 respondents see competition from other banks, particularly regional and community banks, as the biggest challenge in CRE lending.
Most banks identified regulatory burden as their primary concern for the CRE industry looking forward into 2016 and beyond. About 65 percent indicated that recent regulatory guidance on CRE risk management will cause a measureable reduction in credit availability.
“Despite the regulatory atmosphere, CRE lending remains attractive to many banks,” said Davis.
Half of the banks surveyed currently have outstanding loans classified as high volatility commercial real estate, or HVCRE, and of those, more than one-third increased pricing to reflect additional capital costs resulting from the classification.
The survey was conducted from Feb. 4 to March 21, 2016, and in most cases reports calendar year or year-end results. Seventy-seven percent of the respondents were commercial banks and 23 percent were savings institutions. About 60 percent of the participating banks were less than $1 billion in assets.
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