Banks tightened lending standards for commercial real estate loans in the third quarter as they placed more scrutiny on borrowers amid continued economic uncertainty.
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The Federal Reserve’s Senior Loan Officer Opinion Survey on Bank Lending Practices, released this week, showed that banks are raising the bar on CRE lending for all loan categories, including construction, land development and multifamily. Demand for CRE loans weakened over the same period, according to the survey.
The survey pulled responses from 61 domestic lenders and 18 U.S. branches of foreign banks. It also found that commercial and industrial lending standards were tightened for small firms but not large or middle-market firms.
The 10-year Treasury yield surged past 5% last month amid rising debt concerns, hitting its highest level since 2002 before falling to 4.8%. Commercial lenders are now adopting a higher-for-longer interest rate policy as inflation and the war in Iran drag on the U.S. economy, Commercial Observer reported earlier this week.
Many landlords are bracing for a wall of loan maturities coming due this and next year at interest rates much higher than they were several years ago, adding pain to borrowing costs. Private equity has stepped in to offer lending, but the Fed survey found that banks have also tightened lending to nondepository financial institutions, including business and mortgage credit intermediaries and private equity funds.
Banks said NDFIs saw an increase in demand for loans, especially from small business and private equity funds, due primarily to working capital, liquidity needs and increased refinancing needs.
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