Commercial real estate loans are very difficult to obtain. The lack of government backing (outside of multifamily mortgages) and a higher capital charge on office, retail, industrial, and other commercial real estate-related mortgages have severely hindered credit flow and potential business deals. Moreover, the compliance costs related to the Dodd-Frank bill and the uncertainty regarding Basel III rules are said to be too burdensome for smaller independent community banks from lending on modest-sized loans. Large banks have enough legal staff to handle the compliance, but small banks do not.
A survey of REALTORS® who specialize in commercial real estate showed that many traditionally have relied on small local lenders. Furthermore, most deals were in the amount of less than $1 million. In other words, commercial REALTORS® were predominately helping local small businesses start a new business by getting that lease or purchasing a building. But with commercial credit barely flowing from traditional sources of small independent community banks, REALTORS® and clients were forced to turn to the big banks and the accompanying bureaucracy. The big banks, partly as a result, are getting bigger while smaller-sized banks are getting squeezed, which should not be viewed as a healthy development for competition and customer care.
But one recent sparkling spot among smaller-sized lenders is that credit unions have begun to provide more loans. NAR had actively pushed for raising the amount the credit unions would be permitted to lend on commercial real estate. The latest data from the National Credit Union Administration showed the total loan amount rising to $582 billion, at an annualized rate of 3.6 percent, the largest single quarter increase in four years. Given some anecdotal stories of commercial REALTOR® members having a better chance of securing a loan from credit unions, those who had been shut out from traditional lenders should at least inquire with credit unions.