JCP - Why Commercial Real Estate Lending May Never Be the Same
Recessions and financial crises often have a way of changing the banking landscape as a result of deal making and new regulation. But they can also impact the way banks lend. For instance, following the Great Recession in 2008, banks focused a lot less on residential mortgages, historically their bread and butter, because of wide-scale issues that arose in the housing market. A long period of low interest rates that was intended to jump-start the economy made the yield on residential mortgages much less attractive. Collectively, outstanding residential (single-family) mortgage volume at U.S. Banks went from $2.7 trillion in 2006 to $2.5 trillion at the end of 2019, according to the FDIC
In that same period, commercial real estate (CRE) loan volume grew from $886 billion to $1.5 trillion. So there are a lot CRE loans that have really not been stress tested in a recession, let alone during an event like the coronavirus. A CRE loan is typically made to a borrower or company for securing a property for its business. Examples include buying a storefront for a retailer, an office building for a company, a large building for a hotel or a apartment building that houses more than four units. While I do think restaurants and hotels will rebound from the coronavirus pandemic, other types of commercial real estate will never be the same as a result of digital and remote trends that have accelerated during the coronavirus.
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