The findings from the Federal Reserve’s April 2025 Senior Loan Officer Opinion Survey (SLOOS), which reviewed bank lending activity during the first quarter of 2025, showed hesitancy. The survey includes sections that are especially relevant to commercial real estate lending.
Overall, banks reported tighter lending standards and weaker demand for commercial and industrial loans. For CRE loans, standards were either unchanged or tighter, while demand ranged from unchanged to weaker.
Although challenges persist, the results mark a slight improvement over previous surveys, which consistently reported even more tighter standards and declining demand. This shift may indicate early signs of stabilization and the possibility of improved conditions in the future.
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Looking deeper into the results for CRE, moderate net shares of banks tightened standards for construction and land development loans and non-farm nonresidential properties. For loans secured by multifamily properties, standards remained largely unchanged from the previous month.
That is an overall view. Answers varied, depending on the bank's size. Among large banks (those with at least $100 billion in assets on December 31, 2024), “significant and moderate net shares” had eased standards for multifamily and construction and land development loans. Standards for non-farm nonresidential properties remained the same. Significant or moderate net shares of banks with assets of less than $100 billion tightened standards for all commercial real estate (CRE) loan types. Also, modest net shares of foreign banks tightened standards for CRE loans.
A modest net share of banks in general experienced weaker demand for construction and land development loans; demand remained unchanged for non-farm, nonresidential loans and for multifamily loans. Responses were mixed despite the bank size. Significant or moderate net shares of large banks saw stronger demand. Moderate net shares of other banks saw less demand for all CRE categories. A significant net share of foreign banks had stronger demand for CRE loans.
Something cited by a moderate or significant net share of banks for all CRE loan categories was lower loan-to-value ratios and higher debt service coverage ratios. That suggests an increased focus on selecting properties that are less likely to encounter problems and are in a better position to refinance if necessary. A modest net share of banks shortened the interest-only periods for non-farm, nonresidential loans and reduced the market areas for which lenders provide services for multifamily properties.
The most common reasons cited for tightening loans were less favorable or more uncertain outlooks for commercial real estate (CRE) property vacancy rates, property prices, market rents, mortgage delinquency rates, and a reduced tolerance for risk.
On the demand front, banks that saw increases primarily attributed them to customers refinancing maturing loans, an increase in acquisitions or property development, and a decline in interest rates. Banks that experienced lower demand cited a decrease in customer acquisitions, an increase in interest rate levels, a less favorable borrower outlook for rental demand, and a shift in customer borrowing from banks to nonbank sources.
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