As Lending Rises, Procyclical Features Reemerge

Commercial real estate lending by banks trended higher once again in the second quarter of 2014, reflecting growth in the pool of well-qualified borrowers as well as lenders’ increased tolerance for risk-taking. Rather than the bifurcation of capital flows observed early in the real estate recovery, lending has become increasingly balanced in terms of its geographic and property type dispersion. Alongside the conduit and other balance sheet lenders, the tally of banks actively engaging the market has increased steadily.

According to Chandan Economics’ independent analysis of bank call reports, net multifamily lending by banks increased $9.5 billion from the first to the second quarters; commercial real estate including owner-occupied properties but exclusive of multifamily, by $8.1 billion; and, construction loans, by $8.6 billion. As compared to a year earlier, net lending across these categories increased by more than $100 billion. That is a national aggregate that encompasses all property types, but it nonetheless reflects broad increases in activity.