I am not sure how they can do it, but my banker friends tell me that their current marching orders are to contract their commercial real estate portfolios, both in terms of the percentage of total loans and the absolute level of loans. Some banks have a little room for more loans, but most banks need to make reductions in commercial real estate outstandings by telling good customers that their loans will not be extended. It is not a question of pricing or of collateral valuation or of credit quality (okay, maybe a little bit of it is credit quality). The challenge is to make the numbers look better, at least in the short run, to satisfy regulators nervous about potential weakening in the commercial real estate sector.
And the concern is not property type specific, not a single sector that is being targeted. The regulators are nervous about all property types. I am being told that the broadest of brushes is being used to paint the risk inherent in commercial real estate loans and that no property type is being considered a safe haven.
If we did not have the national scene to worry about we would probably do well in South Louisiana. Job creation and income levels are respectable. Mortgage and other loan delinquencies are below national averages. With some exceptions we are not overbuilt in the commercial real estate sector. But the reality is that we are impacted by national perceptions and we will be asked to contract lending portfolios until sometime in mid- to late-2010 when the much-anticipated turnaround occurs.
Don’t blame the bankers. They want to make new loans and renew existing loans with good performance histories. But they have to play by the rules and we need to figure out a way to make the system work for the near future.
Seems like patience will be on the menu for some time to come.
(Brian Andrews is a certified mortgage banker specializing in the financing of commercial real estate. His business is Andrews Commercial Mortgage and he can be reached at brian.andrews@acmla.com.)
