Commercial real estate lending conditions for community banks are likely to decline further in coming quarters after worsening significantly in the first quarter of 2009, according to the Commercial Real Estate Lending Index from Banc Investment Group (BIG) in San Francisco.
The BIG CRE Index fell to 80.58 in the first quarter of 2009 from 90.50 in the fourth quarter of 2008 - a sharp 10.9% decline - due to weakening economic conditions and an across-the-board deterioration in the retail, industrial, office and the multifamily markets. Since the baseline period as of April 30, 2007, lending conditions for community banks have eroded 19.4%. The data strongly suggests that the lending environment will weaken further in 2009.
"Commercial real estate lending conditions will likely deteriorate further after a sharp drop in the first quarter of 2009, creating both new opportunities and challenges for community banks," said Chris Nichols, CEO of Banc Investment Group, the capital markets group of Pacific Coast Bankers' Bancshares. "CRE lending conditions were impacted by a perfect storm of economic uncertainty, tighter credit, falling consumer confidence and substantially higher unemployment. Of particular note was the reversal of fortunes in the multifamily market, which had been faring well, but turned negative in the first quarter. In this environment, bankers need to pay particular attention to loans on a risk-adjusted basis."
The following is a synopsis of community bank lending conditions in the first quarter of 2009 for each of the major commercial real estate lending categories:
The retail sector of the index fell to 78.36, down 11.03% from 88.07 in the fourth quarter of 2008 and 21.28% from 99.54 in the second quarter of 2007.
The industrial sector of the index fell to 69.80, down 16.87% from 83.96 in the fourth quarter of 2008 and 31.51% from 101.91 in the second quarter of 2007.
The multifamily sector of the index fell to 91.43, down 6.15% from 97.42 in the fourth quarter of 2008 and down 3.81% from 95.05 in the second quarter of 2007.
The office sector of the index fell to 82.72, down 10.62% from 92.55 in the fourth quarter of 2008 and 20.08% from 103.50 in the second quarter of 2007.
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