rca lending

Regional and Community Banks Are Main Lenders in REALTOR® Commercial Markets

CRE sales volume continued its positive trend in 2015, with $534 billion in closed transactions, compared with $432 billion in 2014, based on data from Real Capital Analytics (RCA).  In contrast to the large commercial transactions reported by RCA, commercial REALTORS® managed transactions averaging $1.8 million per deal, frequently located in secondary and tertiary markets, and focused on small businesses and entrepreneurs.  The 2016 Commercial Real Estate Lending Trends shines the spotlight on this significant segment of the economy—a segment which tends to be somewhat obscured by reports on Class A trophy commercial properties.

Capital markets proved favorable for commercial real estate during 2015, riding the rising tide of the past two years. Major capital providers found new energy in the growing values of commercial assets and competed for deals, leading to steep acceleration in prices for some property sectors, especially apartments and CBD office buildings.

The lending landscape in large commercial real estate (LCRE) markets broadened further in 2015, compared with the prior five years, as sources of funding actively competed for deals. Based on RCA data, CMBS originators accounted for 21.0 percent of lending at the high end of the market. Government-sponsored enterprises (GSEs) were the second largest source of lending, with 18.0 percent of total transactions, followed by national banks, which comprised 16.0 percent of deals. Regional and local banks made up 15.0 percent of total volume, while life insurance companies accounted for 12.0 percent. Financial institutions, international banks and private investors rounded-up the funding sources, with 10.0 percent, 7.0 percent and 2.0 percent, respectively, of total sales.

rca lending

Based on NAR’s 2016 survey data, capital markets display a fundamentally different landscape in small commercial real estate (SCRE) markets. Local and community banks were the largest lending group in REALTORS®’ commercial markets in 2015, accounting for 31.0 percent of transactions.  Local and community banks maintained market share from 2014, when they made up 32.0 percent of the market. The second largest capital source in 2015 was regional banks, which captured 25.0 percent of REALTORS®’ commercial deals, on par with the previous year.  Private investors were the third main capital providers, accounting for 12.0 percent of deals during 2015.  National banks came in fourth place, with 8.0 percent market share.  The Small Business Administration and credit unions shared an equal proportion, with 6.0 percent of the market each.  Life insurance companies were much less active in REALTOR® markets, representing 3.0 percent of deals, while CMBS conduits accounted for only 2.0 percent of funding, tied with REITs. Public companies and international banks made up about 1.0 percent of all sales.

lending sources

For more information and the full report, access NAR’s Commercial Real Estate Lending Trends 2016 at http://www.realtor.org/reports/commercial-lending-trends-survey.

George Ratiu, Director, Quantitative and Commercial Research

George Ratiu, Research Economist, writes regular economic columns and conducts research in the areas of commercial real estate, international investments, mortgage performance and foreclosures. He produces NAR’s Commercial Real Estate Outlook and manages quantitative surveys, including the Commercial Real Estate Quarterly Market Survey.

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