Commercial banks have lost 17% of their CRE loan origination share. That could make regaining their previous stature difficult as conditions change.
However, Altus Group says there’s a flip side. Non-bank borrowers fall short in the eyes of borrowers in a number of ways that leave the institutions at a disadvantage.
The categories in which borrowers find differences are the following: types of CRE asses managed; satisfaction with lender relations; steps taken throughout a typical loan process; outlook and optimism about the CRE debt market before 2030; and the approach to managing risks and other anticipated challenges.
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Altus commissioned market research firm B2B International between Q4 2023 to Q2 2024 for primary quantitative and qualitative research among more than 400 U.S. CRE borrowers.
As in any industry, the characteristics of vendors can attract different types of customers, which can vary by size, focus, interests, location, business factors, budgets, resources, and more. Banks used to reliably originate between 37% and 40% of all commercial mortgages. Now, they handle about 33%. That represents a large group of originations that banks once habitually attracted. Those form an opportunity that banks may need to reattract, but which non-bank lenders haven’t necessarily captured.
Bank borrowers have smaller but more diverse CRE portfolios, as 60% have less than $1 billion AUM, while 40% have $1 billion or more. About 37% of non-bank borrowers have less than $1 billion in AUM; 63% have over that threshold. Bank borrowers might have smaller portfolios, but they are typically more diversified; on average, they took out loans for five to six different CRE property types over a year. In comparison, other borrowers took out three to four CRE loans and were less likely to invest in some specialized asset types, like retail or healthcare.
There are more smaller borrowers than larger ones. Banks, as one of the owner-operators explained, could be more flexible than, say, an insurance company that had stricter terms. “So, the property type can dictate who we want to work with, although our internal [evaluation and selection] criteria remain the same,” the person said.
Each type of lender offered different benefits to borrowers. The top five perceived benefits from banks were greater timeliness or efficiency (42%); greater lender stability (31%); greater certainty of execution (29%); more personalized service (29%); and easier-to-secure loans/financing (28%).
For non-bank lenders, the top five perceived benefits were more personalized service (36%), easier to secure loans/financing (29%), greater lender stability (27%), greater timeliness or efficiency (26%) and greater certainty of execution (19%).
There is a lot of overlap in perceived benefits between the two types. That suggests there is a lot more potential for either type to attract customers from the other, so long as they can understand how to position themselves with borrowers to emphasize the most attractive benefits and learn how to manage the size and range differences.
It might also mean that borrowers can look beyond their assumptions and learn to work with a broader set of lenders to get better access to capital.
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