Commercial real estate lending improves in the fourth quarter

Jessica SarterCommercial Lending

Banks stepped up their lending activity to commercial properties and construction projects in the fourth quarter, according to a report released Thursday by Chandan Economics.

The quarterly gain marked the first time in nearly a year that commercial real estate and apartment buildings enjoyed an uptick in borrowing. Specifically, banks increased their lending to commercial projects by $5 billion throughout the October-December period.

The default rate on commercial real estate loans dropped to 3.8 percent of total credit balances during the fourth quarter, down from 3.9 percent in the third quarter and 4.3 percent a year earlier.

Analysts hold that the report points to a general improvement in the U.S. economy. Since the recession began, the housing and construction sectors have suffered widespread foreclosures, job losses and weakened demand, all of which served to limit the availability of credit to the market.

"Commercial real estate … depends on large loans to finance the acquisition of properties, such as office buildings, shopping malls and warehouses, and to refinance maturing loans," explains Ilaina Jonas for Reuters. "Soon after the credit crunch hit crisis mode in late 2008, many believed that the commercial real estate sector would follow the bust of the housing sector."

While some institutions waited around for banks to reopen their credit lines, others turned to alternatives sources, such as private investors, lending networks and crowdfunding sites.

Sam Chandan, chief economist at Chandan, argues that property owners need to refinance and the volume of commercial mortgage-backed securities is still a fraction of what it was before the recession hit.

"We still face significant headwinds in commercial property but the latest findings are encouraging," he told Bloomberg in an email.