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CRE Lenders Like Their Odds – Feb. 12, 2024

Treasury Secretary Janet Yellen believes that commercial real estate lending poses a risk to banks, yet at the same time she doesn’t believe that risk will evolve into a contagion. 

“I hope and believe that this will not end up being a systemic risk to the banking system,” Yellen told the Senate Banking Committee last week. “The exposure of the largest banks is quite low, but there may be smaller banks that are stressed by these developments.” 

How do lenders themselves see it? A new survey from Built Technologies, a Nashville-based provider of construction and real estate finance technology, offers insights into their current thinking. 

By and large, the survey shows that lenders are confident in the financial feasibility of real estate investment in the U.S. in 2024. Built’s inaugural State of Lending Survey polled 117 national, regional and global lending institutions on their views of the current lending and economic landscape in the U.S. 

Most of the lenders surveyed maintain an optimistic view on the economic climate. Although 66% of U.S. lenders agree the U.S. is not in or approaching a recession, 75% have concerns about the macroeconomic environment moving forward and 59% anticipate government regulation will have a significant impact on their financing decisions this year. A majority (80%) of lenders participating in the survey have concerns about increased length of construction projects over the next 18 months. 

“While they have some underlying concerns such as government regulation and the speed to project completion, lenders generally see a positive environment for rates,” said Dan Gendler, Built’s director of analytics. “We’re also seeing more alternative sources of lending stepping in where the banks can’t take the risk, whether it’s due to regulation or balance sheet flexibility.” 

When traditional lending sources can’t take the risk due to regulation or balance sheet flexibility, more alternative sources of lending have come forward to close the gap. As liquidity and balance sheets tighten, 41% of lending institutions expect to become a referral source for construction loans to non-bank lenders (such as Apollo, Blackstone, and others). A minority of respondents (11%) say their lending institution has not experienced liquidity or balance sheet tightening.  

Looking ahead, 74% of respondents said they anticipate the 30-year mortgage rate to decrease by Jan. 1, 2025. Of those, about one-third predict that rates will fall somewhere between 0.51 and 1 percentage points, while 24% anticipate rates will fall between 1.01 and 1.5 percentage points. 

Not surprisingly, as optimistic as lenders may be, they’re picking their battles. Asked which asset class they expect to see garnering the most financing activity, 35% of respondents selected multifamily and another 26% chose residential. Just 2% cited office, while 1% favored hospitality. Retail fared slightly better at 4%. 

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About Paul Bubny

Paul Bubny serves as Senior Content Director for Connect Commercial Real Estate, a role to which he brings 16-plus years’ experience covering the commercial real estate industry and 30-plus years in business-to-business journalism. In this capacity, he oversees daily operations while also reporting on both local/regional markets and national trends, covering individual transactions across all property types, as well as delving into broader subject matter. He produces 7-10 daily news stories per day and works with the Connect team and clients to develop longer-form content, ranging from Q&As to thought-leadership pieces. Prior to joining Connect, Paul was Managing Editor for both Real Estate Forum and GlobeSt.com at American Lawyer Media, where he oversaw operations at both publications while also producing daily news and feature-length articles. His tenure in B2B publishing stretches back into the print era, and he has served as Editor in Chief on four national trade publications. Since 1999, Paul has volunteered as the newsletter editor of passenger rail advocacy groups (one national, one local).