Commercial Real Estate Recovery? Lenders Begin to Loosen the Reigns

The silence has been deafening in recent years as lending for commercial real estate development has been in hibernation mode. Lenders have understandably focused more energy towards purging assets and strengthening their balance sheets than on lending activities. A shift is taking place, however, as more lenders begin to see light at the end of the tunnel and we may begin to see a credit ‘thaw’ during the next 12 – 24 months. According to Realty Information Group, banks increased their commercial real estate lending in 2012 by 3%, with some banks increasing commercial real estate loans by as much as 15%.

This may be the latest sign that the office market is beginning to recover. Investment activity is also up, as is the appetite for development. These are all strong signs of recovery for the commercial real estate market. I expect to see the same tightening of the office market as has already taken place in the industrial market.

However, this tightening could take some time. Job growth is still tepid and much of the absorption of office space has been from the mortgage sector, which has proven in the past to be a short-term fix for landlord’s looking to fill big holes in their buildings. When interest rates begin to rise and the refinance boom starts to cool, the large mortgage companies will likely reduce their footprint substantially. How all of this will directly effect tenants will depend on several factors. More development means more vacancy and possibly downward pressure on rents. Further, buildings changing hands may also have an effect on a tenant’s ability to renegotiate its lease. Stay tuned…

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