In response to the FDIC’s “stark warning” for commercial real estate lenders to maintain prudent risk-management practices, U.S. banker say they will keep a close eye on CRE loan portfolios and will slow the pace of commercial real estate lending if necessary, according to a news report from the CoStar Group.
Commercial real estate lending at U.S. banks climbed steadily through the third quarter 2015 to a total of $1.8 trillion in outstanding CRE loans, outpacing by about $170 billion the previous peak set at the end of the second quarter 2007, the report said.
U.S. banking statistics also indicate that underwriting standards for CRE loans have eased during the past three years to a level that prompted last month’s FDIC warning in which the federal banking regulators said they would intensify oversight of commercial real estate lending practices in 2016, CoStar said. The FDIC has not issued a warning regarding CRE lending since 2005.
One CRE lender agreed with the FDIC, telling analysts “the market is a little hot in certain areas,” CoStar reported. KeyCorp’s Corporate Bank plans to slow CRE lending growth and adjust its housing forecast, telling the analysts KeyCorp would be involved in less construction loan activity.
Despite KeyCorp’s standpoint, other commercial real estate lenders are not yet ready to bow out of the market, citing strong CRE market fundamentals and pricing.
First Financial Bancorp told analysts the market so far has been “pretty strong and healthy,” adding that although some markets are admittedly soft, First Financial focuses on multifamily, health care and build-to-suit office, according to the news report.
BankUnited told analysts it was too soon to determine where to accelerate in the market and where to pull back, but that the company would be watching closely and would react as conditions warrant. The bank said it had no intention “of eliminating one market and emphasizing another in its entirety,” CoStar reported.
BankUnited also said the FDIC warning didn’t consider the differentiation in CRE property types and markets, but looked at commercial real estate as a single category, the news report said. The bank said federal regulators clearly are nervous about the more speculative areas of the market, CoStar noted.
U.S. bankers must manage where they are lending, what property types are covered, and the underwriting practices, CoStar explained in the report, adding that in that regard, commercial real estate lenders all plan to be more selective this year.
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