X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.

SAN FRANCISCO-This month Banc Investment Group’s CEO Chris Nichols made an internal measurement that was only shared with clients – its Commercial Real Estate Lending Index – public for the first time. The results, released this week, were not pretty or surprising. The Index, which focuses on commercial real estate lending for community banks, forecast that conditions will continue to decline in coming quarters for community banks that lend to real estate.

Specifically, the so-called BIG CRE Index fell to 80.58 in the first quarter of 2009 from 90.50 in the fourth quarter of 2008, a 10.9% decline, due to weakening economic conditions and an across-the-board deterioration in the retail, industrial, office and the multifamily markets. Lending conditions for community banks eroded a total of 19.4% from Banc Investment Group’s baseline date of April 30, 2007.

GlobeSt.com: There are a lot of metrics out there that measure activity in the CRE community. How does this Index differentiate itself?

Nichols: We are capturing lending and risk. We don’t measure sentiment for instance, which the Real Estate Roundtable’s Index does. Also the focus is on community banks, which tend to be overlooked in surveys. We also look at the quantitative fundamentals of debt at the property level – we are one of the only comprehensive indexes that does that. That is very important and should be emphasized more: the ability for any given property to throw off a certain cash flow and that property’s ability to continue to do so is important to understand on the individual level as well as the aggregate.

GlobeSt.com: How could this index be helpful to policy makers as they shape programs for commercial real estate?

Nichols: It’s a good third party benchmark. It shows whether markets are deteriorating or improving and if so, how fast. It showed, for instance, the stark deterioration of retail from Q4 08 to Q1 09. A lot of people realized that without a benchmark of course. But the Index also showed that industrial properties dropped even further. Policymakers could see that and decide to shore up business manufacturing or devote other resources to this area.

[Editor's note: according to the Index the retail sector fell to 82.72, down 10.62% from 92.55 in the fourth quarter of 2008 and 20.08% from 103.50 in the second quarter of 2007. The industrial sector fell to 69.80, down 16.87% from 83.96 in the fourth quarter of 2008 and 31.51% from 101.91 in the second quarter of 2007.]

GlobeSt.com: Does the Index hold out any good possibilities for the near term?

Nichols: There is evidence that the commercial real estate market will not drop off a cliff in the way subprime market has. commercial real estate is still cash flowing, somewhat stable and there is some liquidity in the system. Government programs are actually helping.

GlobeSt.com: In the long run do you think community banks are going to permanently scale back their lending in commercial real estate?

Nichols: I think they will be more cautious and grow this activity more slowly. But commercial real estate is still among the most profitable business lines a bank can put on its books, so no, I don’t see a permanent scale back. Also there is the argument that now is the time for many banks to expand since a lot of the risk has been taken out of the market.

Want to continue reading?
Become a Free ALM Digital Reader.

Once you are an ALM digital member, you’ll receive:

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications

*May exclude premium content
Already have an account?

Dig Deeper

GlobeSt

Join GlobeSt

Don't miss crucial news and insights you need to make informed commercial real estate decisions. Join GlobeSt.com now!

  • Free unlimited access to GlobeSt.com's trusted and independent team of experts who provide commercial real estate owners, investors, developers, brokers and finance professionals with comprehensive coverage, analysis and best practices necessary to innovate and build business.
  • Exclusive discounts on ALM and GlobeSt events.
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com.

Already have an account? Sign In Now
Join GlobeSt

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.