Louisville Real Estate News

Trouble Signs Ahead in Commercial Real Estate

( February 13, 2006) –   In the last three months of 2005, quite a few of the nation’s banking companies posted gains in commercial real estate lending, with several even reporting plans to expand their commercial property units. But concerns loom among analysts.

Interest-rate worries are growing, as are worrise over relaxed underwriting standards, some condo-conversion markets on the verge of overheating, and some lenders’ overexposure.

RBC Capital Markets Inc. analyst Gerard Cassidy remarked that commercial real estate lending “is going to be the hot topic of conversation if the economy slows down and if interest rates go higher.”

If guidelines proposed early last month by the Federal Reserve are enacted–requiring banks with high concentrations in commercial real estate to strengthen their underwriting and risk management policies–Heather Wolf of Merrill Lynch & Co. warned in a report that commercial property and construction loans could be scaled back in 2006.

Any bank with commercial property loans at least three times its capital would be deemed “highly concentrated” in commercial real estate.

Source: American Banker, Jim Cole (02/13/06)