Fed says Banks tightened loans in Q2 while Insurance Companies pursues more CRE lending
While the broad standards for business loans have remained unchanged, loan officers at U.S. banks reported tightening lending standards on commercial real estate loans and a weaker demand for both types. According to a quarterly survey conducted by the Federal Reserve, banks reported stricter standards for construction and land development loans as well as loans secured by multifamily residential properties. In 2017, capital and lending competition in the commercial real estate capital markets remained strong remained strong despite political and transactional uncertainty, which in turn created a uniquely robust financing environment for borrowers across all real estate sectors.
The effect of foreign investment, private funds for wealthy individuals and most notably insurance companies that are backing development in Boston and other major cities across the country. According to the John B. Levy National Mortgage Survey, rates are currently in the 3.5 percent to 4 percent range for 5- and 10-year mortgages from life insurance companies looking for lower leverage loans. Fannie Mae and Freddie Mac fuller leverage loans are on average 0.50 percent to 0.65 percent higher for 10-year deals. Insurance companies like AIG, AXA, MetLife, New York Life, Prudential, and TIAA have become the biggest lenders funding capital market developments with class A offices and retail space in prominent cities like Boston, New York and Chicago. While commercial banks still hold more than half of the outstanding debts in CRE and multifamily capital market loans, insurance companies have since outpaced banks in originations according to data released by the Mortgage Bankers Association. The major shift in demand for traditional bank loans could be directly attributed to insurance companies and pension providers, in the U.S. or abroad, investing as big commercial real estate players in top cities.