Commercial Lending Climate Improves

February 06, 2012 / Elizabeth Buckley, Commercial Property Analyst

Recovery in the banks and other lending institutions is improving the overall picture of commercial lending in the year 2012. There are banks still focusing on rebuilding their capital. However, the signs of an improved economy bring hope for the future of commercial lending in the real estate industry.

Commercial Lending Climate Improves

There is nowhere near the volume of commercial real estate loans that existed in 2005 through 2007. But, the effect of low interest rates started to show in the transactions when 2011 came to a close. Investors are showing renewed interest. But, they are being particular about where they borrow the funds. Commercial banks are the first choice, with life insurance companies following and pension funds seeing some activity. Lenders of capital for new construction loans are very stringent in lending practices today.

Commercial real estate loans were granted at one firm by an increased average of 10.8 percent and the expectation is for 12.2 percent growth in 2012. Both acquisitions and loan originations were active in 2011. Various official realtor associations claim a favorable financial future is imminent for 2012. In 2011 volume increased to $162.8 billion in multifamily and commercial sales, which was an increase of 29 percent.

Unusually low interest rates had a positive effect on borrowing. Other factors affecting interest rates include the economic recovery moving slowly in the upward direction and the debt crisis that is occurring in Europe. These conditions are expected to keep interest rates low, at least in the year 2012.

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