- Banks tightened lending standards, on net, for construction and land development, nonfarm nonresidential and multifamily loans in the third quarter, according to the Fed’s October senior loan officer survey.
- Demand weakened for all three CRE categories. Foreign banks diverged, reporting tighter standards but stronger demand, and lenders also tightened on loans to nonbank financial firms such as private equity funds.
- The shift contrasts with the April survey, when large banks eased CRE standards, and suggests borrowers face a tougher refinancing market heading into year-end.
Banks pulled back on CRE lending last quarter. Lenders tightened standards on every commercial real estate loan category in the third quarter and reported weaker demand, according to the Federal Reserve’s October senior loan officer survey, as covered by the ABA Banking Journal.
The pullback spans construction and land development, nonfarm nonresidential and multifamily loans.
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Foreign Banks Break Ranks
Foreign banks told a different story on demand. They also tightened, but they saw stronger CRE loan demand on net.
Beyond Commercial Real Estate
Residential lending showed weaker demand across all mortgage categories, with home equity lines the exception. Standards stayed mostly unchanged, though banks eased on jumbo loans and tightened on subprime.
For business loans, standards held steady at large and midsize firms but tightened for small ones. Lenders also tightened on loans to nonbank financial companies, including private equity funds, citing a cloudier outlook and weaker borrower finances.
Zoom Out
The turn is notable. In the April survey, which we covered under large banks easing CRE lending, big U.S. banks had loosened standards on construction, core commercial and multifamily loans and reported stronger demand for the latter two.
At the time, smaller domestic banks were already tightening on construction and multifamily, and lenders pointed to competition from traditional lenders and private credit firms as the reason terms had eased.
Why It Matters
For owners facing maturities, tighter standards narrow refinancing options. Weaker demand also suggests fewer borrowers are looking to take on new debt.
Banks stepping back from nonbank lenders is worth watching too, since private credit has been a major source of capital for property.
What’s Next
The next survey will show whether banks keep tightening or ease again.
