CRE Lending Conditions Worsen For Community Banks

cial real estate lending conditions for community banks are likely to decline further in coming quarters after worsening significantly in the first quarter of 2009, according to the Commercial Real Estate Lending Index from Banc Investment Group (BIG). The BIG CRE Index fell to 80.58 in the first quarter of 2009 from 90.50 in the fourth quarter of 2008 – a sharp 10.9% decline – due to weakening economic conditions and an across-the-board deterioration in the retail, industrial, office and the multifamily markets. Since the baseline period of April 30, 2007, lending conditions for community banks have eroded by 19.4%. The data strongly suggest that the lending environment will weaken further in 2009, BIG says. "CRE lending conditions were impacted by a perfect storm of economic uncertainty, tighter credit, falling consumer confidence and substantially higher unemployment," says Chris Nichols, CEO of BIG, the capital markets group of Pacific Coast Bankers' Bancshares. "Of particular note was the reversal of fortunes in the multifamily market, which had been faring well, but turned negative in the first quarter. In this environment, bankers need to pay particular attention to loans on a risk-adjusted basis." The multifamily sector of the index fell to 91.43, down 6.15% from 97.42 in the fourth quarter of 2008, according to the quarterly index, which focuses on the multifamily, office, retail and industrial sectors. Multifamily has been more resilient and actually improved slightly through 2008 compared to the second quarter of 2007. However, the economic downturn began to take its toll in the first quarter of 2009. Multifamily construction continued at a steady pace, while net absorption rates dropped, pushing up vacancies and resulting in rent declines. Vacancy rates rose to 7.2% in the first quarter of 2009, and rent growth for the quarter was negative 1.1%. SOURCE: Banc Investmen


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