A recent report from Berkadia examines whether the widely reported recent tightening in lending standards by banks has significantly impacted the banks’ lending on commercial real estate. It concludes that, in the case of multifamily lending and industrial property lending, other factors were as important in reducing loan volumes.
The SVB effect
While the collapse of Silicon Valley Bank (SVB) focused attention on the banking industry and fed the talk of tightening lending standards, Berkadia notes that lending standards were being tightened even before SVB failed. At the same time, demand for commercial loans was falling due to the unprecedentedly rapid rise in interest rates and the inability of buyers and sellers to agree on pricing.
In assessing the impact of any change in lending standards, Berkadia looked at both the change in the level of commercial loans held by banks and also at the share of multifamily lending originated by banks. It noted that banks continue to increase their holdings of commercial real estate loans in 2023, although at a lower pace than in the record-breaking year of 2022. The report also found that the share of multifamily sales transactions financed through banks in 2023 remained near the average of the last 7 years.
Other lenders seek opportunity
In the event that banks do become more reluctant to lend, the report notes that other types of lenders are seeking opportunities in the commercial lending “sandbox”. It singled out life insurance companies as being very active in the multifamily property sector. It also noted that private equity funds are sitting on $340 billion in investment capital.
The report notes that the time from loan initiation to funding may take 120 days. Since SVB only failed in March, it is possible that the full impact of any change in lending standards resulting from its failure are not yet apparent in the marketplace. A report from the Mortgage Bankers Association found that commercial mortgage originations by banks fell in Q2 2023, while originations rose for most other lender types, so it is possible that the SVB effect is only now appearing.
The full report is available here.
