Andrews: Will banks open up to CRE in 2012?
A recent article in National Real Estate Investor caught my attention with the headline "Banks Plan to Increase CRE Allocations in 2012, but Risk Remains a Watchword." It then lost my attention with stories of renewed financing of condo developments in Florida (no, really), but I just had to plow through hoping for some good news. Years of reading Tom Cook appraisals prepared me for this moment.
The key points turned out to be not-so-surprising: Multifamily transactions are most favored, even construction projects, because there is a consistent permanent takeout market. Retail and office deals will require a "significant amount of pre-leasing in order to qualify for a bank loan." The article then mentioned a willingness by large financial institutions to enter "secondary and sometimes tertiary markets" after competition for good CRE deals has become too heated. Good news for Louisiana? Not really, since cities like Dallas, Houston and Denver were listed as secondary markets. I'm not sure that any of our cities have hit the radar of large national banks except perhaps in the case of larger trophy assets with investment grade credit.
Will banks, credit unions and other lending groups already operating in Louisiana open up to CRE in 2012? Most of the bankers I spoke with agreed that CRE as an asset category has stabilized, meaning that quality is no longer deteriorating, and that lenders needing to generate profits in 2012 will consider good real estate deals. So yes, I believe these lenders will probably increase their CRE appetite in 2012. But the key is to generate "profits" rather than simply adding loan volume. Credit quality and complete due diligence will be essential in successful loan transactions, and lenders will prefer doing nothing to making overly risky loans in this new year.
(Brian Andrews is a certified mortgage banker specializing in the financing of commercial real estate. His business is Andrews Commercial Real Estate Services, and he can be reached at [email protected].)
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