Your Input Needed to Solve Lending Crunch

AGC members continue to report that developers are unable to get loans for commercial real-estate (CRE) projects, and many members have had their own lines of credit tightened or canceled. These observations match the latest survey of senior loan officers by the Federal Reserve, which the Fed summarized on August 17. The Fed reported that, out of 55 large domestic banks and 23 branches and agencies of foreign banks, "The fraction of domestic respondents that reported tightening standards on CRE loans fell to about 45 percent, compared with 65 percent in April. Still, this fraction is higher than that reported for [commercial and industrial] loans and all consumer lending categories except nontraditional residential mortgages. About 45 percent of foreign banks also reported tightening standards on CRE loans, a slight increase from the figure reported in April. The net percentage of domestic respondents that reported weaker demand for CRE loans fell slightly-to roughly 65 percent-but it remained large by historical standards and relative to other loan categories. About 45 percent of foreign respondents also reported weaker demand, a slight increase from the April survey." Ominously, "With respect to CRE lending standards, nearly all banks indicated that current standards were tighter than their longer-term average levels. Around 40 percent expected standards to return to longer-term average levels by the second half of 2010 or in 2011 for both investment-grade and non-investment-grade lending. However, 40 percent indicated that standards for investment-grade CRE lending would remain tighter than their longer-term average levels for the foreseeable future, and about 55 percent expected this outcome for non-investment-grade CRE loans." High and rising vacancy rates for office, retail and warehouse space and low occupancy rates for hotels make most developer-financed properties a risky bet. Nevertheless, some developers have projects that would be able to pay off loans, yet have been unable to qualify under current lending standards. AGC will form a task force to examine whether any additional government programs are warranted to improve the flow of funds to worthy commercial real-estate projects. To volunteer for the task force or submit your ideas for what to do, email simonsonk@agc.org.