Tighter Credit Standards and Bank Liquidity

Commercial real estate lending by banks represents one of the largest blocks of available debt financing in the U.S. market. In the wake of the regional banking crisis, where three of the four largest American bank failures happened in the span of a couple months and the Federal Deposit Insurance Corporation was forced to take over, the attention of the market and regulators shifted to analyzing CRE lending and any complicity this sector had in the collapse of regional banks.

The expectation in the immediate aftermath was that credit standards would tighten and access to lending from bank balance sheets would dry up. While some of these expectations have come to fruition, the extent to which credit tightening was expected has not fully materialized, especially for multifamily products.  

Key Takeaways: 

• Small domestically chartered commercial banks steadily increased their market share in commercial real estate lending when compared to large banks over the past decade

• All the speculation and assumptions around drastic pullbacks in bank lending have yet to fully materialize

• U.S. Banking regulators rolled out a proposed rule for stricter bank capital requirements designed to ensure the stability of both top and second tier banks – called the Basel III Endgame

• Multifamily remains a preferred sector, with abundant debt financing options – including banks – making a play for the limited acquisition and refinance activity the capital markets are currently seeing