Banks Once Again Consider CRE Loan Applications

By Dan Yates, Regents Bank

Investors seeking to finance their real estate purchases may be heartened by the trickle of news over the last month or two about banks ramping up their commercial real estate lending activity. This may come as a surprise because many expected the commercial real estate crash to make a louder boom and an even bigger crater than the residential real estate crash.

Investors seeking to finance their real estate purchases may be heartened by the trickle of news over the last month or two about banks ramping up their commercial real estate lending activity. This may come as a surprise because many expected the commercial real estate crash to make a louder boom and an even bigger crater than the residential real estate crash.

The anticipated crash became more of a slow deflation, and critics are divided about whether the commercial real estate market has bottomed out yet. Nonetheless, banks with the wherewithal to do so are very selectively extending commercial real estate loans.

For those banks, the relatively high yields compared to investing their funds in low-risk securities motivate their leaders to consider high quality loan applications from firms with proven track records and strong positioning within certain industry sectors. Location also plays a significant role in commercial real estate lending activity, as some markets and industries within those markets are rebounding more strongly than others.

Speculative development in most commercial real estate sectors will likely continue to face an extremely challenging lending market, but business owners/occupiers looking for commercial real estate loans may have more success. That said, successful borrowers are still likely to face larger equity commitments and may have to offer guarantees on personal property.

Bankers review loan applications with more scrutiny than ever. Banking is a heavily regulated industry, so applicants are wise to help their lender justify the loan by presenting detailed and consistent financial statements as well as a firm understanding and analysis of the real estate market in their area.

Relationships are important too. Loan applicants who have developed a relationship with their banker may have an easier time getting approved because the banker will already have a good understanding of their business and performance.