RCA in the commercial property press:

Experts: Lending Hampering Industry's Recovery

Globe St reports: The residential housing forecast by NAR chief economist Lawrence Yun earlier during the National Association of Realtors’ conference in San Diego was all smiles. That was not the case during the "Economic Issues and Commercial Real Estate Business Trends Forum." The commercial real estate loan is "dead in the water," Yun said. "A severe ongoing credit crunch in commercial real estate lending is hampering recovery."
Yun addressed a packed house of attendees all hoping to hear something positive in his forecast. Unfortunately, what they mostly got was some major concern surrounding the credit situation in the commercial market. Yun said the recent severe economic downturn and high unemployment continue to impact commercial real estate markets. "The commercial real estate market continues to struggle in this difficult economy, with rising vacancy rates and falling rents," Yun said. "Commercial transactions and sales are down across the country from the virtual lack of available credit—banks are not lending and mortgage-backed securities are virtually nonexistent. The government needs to take action to relieve some of the lending pressure."

According to Yun, the commercial real estate market price movement of the past 10 years closely mimicked the rise and subsequent fall of the residential housing market, even though commercial underwriting standards were far more prudent than those of residential subprime and other risky mortgage loans. Yun said in the current market the federal government is not backing commercial loans as it is for the residential home market.

While commercial REIT equity issuance increased recently because of positive increases in the US stock market, the flow of capital into the commercial real estate market remains weak because lenders remain very reluctant to lend, Yun explained. Yun pointed to data from Real Capital Analytics, which showed that the largest source of financing for commercial projects under $5 million is currently local and regional banks, which helped fund nearly 48% of recent transactions. Yun explained that there are many small regional banks that weren’t involved in risky lending in recent years and aren’t suffering from large amounts of loan defaults like some of the larger banks.

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Posted by: Ryan Bernard

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