Key Highlights
- Earlier this year, big banks are changing course and planning a pullback on new CRE loans as interest rates increase.
- It was reported that projections from the Mortgage Bankers Association expected commercial and multifamily lending to fall to $733B this year, an 18% drop from 2021.
After setting records for commercial real estate lending earlier this year, the biggest banks in the country are changing course and planning a pullback, citing weakening demand and concerns about the effects of higher and heavily increasing interest rates.
Bloomberg reported that Wells Fargo & Co., Bank of America Corp., Morgan Stanley, Goldman Sachs Group, and JPMorgan Chase & Co. are all tightening their purse strings regarding commercial real estate, issuing fewer new loans, and having stricter terms on those they issue.
According to Federal Reserve data cited by Bloomberg, the drop-off is noticeable because US banks lent $316B in net new commercial real estate loans in the first half of this year. The lending boom constituted a 172% increase over H1 2021 numbers and came as higher interest rates made borrowing twice as expensive.
Eastdil Secured President Michael Van Konynenburg told Bloomberg that commercial lending from the biggest banks could be less than 50% in the latter half of this year compared to the first if the current pace holds.
It was reported that projections from the Mortgage Bankers Association expected commercial and multifamily lending to fall to $733B this year, an 18% drop from 2021.
Newmark Head of National Loan Sales Brock Cannon told Bloomberg that these banks had been asked to slow down on lending to CRE, especially on office properties. He added that the government is trying to get its arms around everything to see how impactful this will be; how severe the losses will be.
The office is often singled out as the most vulnerable asset class, primarily due to the lingering uncertainty about whether workers will ever return to their workplaces at a large enough volume to sustain the property type.
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