It’s an exciting time for the Private Commercial Lending industry. 2012 trends are showing growth for commercial investments and many regional and local banks have started lending again for commercial projects. The demand for private money is still very high as the banks and mortgage companies are still avoiding construction and land development. Also the recent years’ lack of funding for notes coming due and distressed properties has left the door open for Hard Money Lenders and Equity Lenders.
Investment volume for major properties is expected to grow by 50% to upwards of $300B in 2012. CRE has become a very attractive asset class. Equity capital will become more abundant and motivated in the coming 12 months as banks loosen lending standards and demand increases.
According to the Federal Reserve, the driving factors include:
- Banks and insurance companies have at disposed of about $227B in commercial and multifamily loans. There is still about $160B in distressed loans to resolve or dispose.
- Upcoming loan maturities for commercial loans this year will be about $336B. Some published estimates were closer to $362B. A larger portion of these notes will be written by mortgage companies and private equity firms.
- The economy is showing signs of recovery in major rental markets. The upswing will pressure investors to move on distressed properties as price appreciation accelerates.
- Cap rates will likely decrease for most markets and property types as fundamentals move from recovery to expansion for multifamily markets.
Loan Officer Survey
In April 2012 The Federal Reserve surveyed Senior Loan Officers of 81 banks in the US to address changes in supply of and demand for bank loans to businesses and households over the past three months.
Supply & Demand
We are particularly interested in the results regarding commercial real estate lending. The survey results indicate that a modest net fraction of domestic banks reported easing their standards on CRE loans and demand for CRE loans strengthened, on net, over the past three months. This is likely due to the declined supply in the past 12 months.
Twenty three of the respondents were US branches of foreign banks. These respondents indicated that their standards on CRE loans were about unchanged. The foreign respondents reported that demand for CRE loans had changed little over that period.
One important note is that over the past 24 months, lending standards have increased significantly and most US banks have dropped CRE lending programs for land development and construction.
So the banks are holding steady. The opportunity for Private Lenders and Private Mortgage companies will continue to be strong through 2012 and likely for several years to come.