A new survey from the Federal Reserve finds banks have eased lending standards for commercial loans during the first quarter of 2018.
Based on information gathered from an official survey, the agency reports banks have eased important lending terms for commercial real estate loans. These terms include the amount the bank is willing to provide as capital and the rate for the loan.
Where is this information from? The data used to reach this conclusion was gathered from the Senior Loan Office Opinion Survey on Bank Lending Practices released by the Federal Reserve. It included information from both domestic and foreign banks. 72 of the surveyed banks were domestic, 22 branches of foreign financial institutions.
The information provided below focuses primarily on the data gathered from domestic banks.
What did the survey find? Banks eased standards on commercial loans for large and middle market firms. Small firms did not experience the same benefits. The reasons for this change appears to be aggressive competition. Other banks or nonbank lenders are offering better rates, so domestic banks are following suit.
What does this mean in the big picture for commercial real estate investments? A recent piece in Market Watch notes several fed officials are uncomfortable with this change. One specific concern: the low interest rates may trigger a commercial real estate bubble.
If critics are right and a bubble exists, investors could experience financial fallout in the future.
Those who are interested in making the most of these rates and investing in the commercial real estate market can take proactive steps to mitigate any potential risk. This includes completion of due diligence and proper tax planning. An attorney experienced in the legal matters that come with commercial real estate investments can help.