CRE loans from banks: How has the borrowing experience evolved?

CRE borrower resilience and optimism for the bank lending process

Borrowers and lenders alike have been navigating a difficult environment where commercial real estate debt is more expensive, liquidity is tighter and it’s difficult to get deals to close.

Yet the results of the latest Altus Group research report on the US CRE debt market show a market that appears to be adapting to market challenges and is more positive on the near-term outlook. At a high level, more than half of all bank borrowers said they are somewhat or very optimistic about their ability to access sufficient funding for CRE projects over the next two to three years.

Optimism about availability of CRE financing in the next 2-3 years: bank borrowers vs. non-bank borrowers

Debt is undeniably the lifeblood for commercial real estate. In the US, the total volume of total commercial and multifamily mortgage debt outstanding is now more than $4.65 trillion. Positive sentiment from bank borrowers is especially important considering that commercial banks hold the largest share (38%) of commercial and multifamily mortgages at $1.8 trillion, according to the Mortgage Bankers Association.

Altus Group’s 2024 Research Report, Lending for commercial property: The US borrower's perspective, takes a deeper dive into borrower sentiment related to key areas such as satisfaction with lenders, qualities they look for when selecting a lender, how they view the lending process overall, and where there is room for improvement. The survey also gauges borrower sentiment on market trends and near-term outlook for their ability to access capital and navigate risks.

Accessing bank debt isn’t getting harder (really)

Despite obvious challenges to accessing bank debt, one of the surprising results of the survey is that those bank borrowers who think it is harder to secure CRE loans are in the distinct minority. Nearly half of bank borrowers think the ability to secure loan/financing from CRE lenders is about the same, while 41% said it is easier and only 11% said it was harder.

Ease of securing loans / financing from CRE lenders: bank borrowers vs. non-bank borrowers

Bank borrowers are more optimistic than non-bank borrowers, who were fairly evenly divided on whether securing financing was harder, easier or about the same.

One reason for that view is that bank borrowers may be adapting to the challenges in the current market. A key strategy that borrowers are using to navigate the more difficult market is increased diversification. More than two-thirds of bank borrowers (68%) said they plan to increase lender diversification, while 63% said they plan to increase asset diversification

Strategies for overcoming near-term-risks and challenges

Bank borrowers are more satisfied with their lenders

Across all borrowers surveyed, respondents rated their overall satisfaction with lenders between 7 and 8 out of 10. However, bank borrowers tend to be more satisfied with their bank lenders with an average rating of 8.3 as compared to non-bank borrowers that rated overall satisfaction with non-bank lenders a 7.5.

Although the top driver of dissatisfaction in securing a loan is the high cost of capital, bank borrowers also express frustration with stringent underwriting criteria, minimal loan flexibility, unsophisticated underwriting processes, and difficulty securing more financing / larger loans. When it comes to improving the loan process, two of the top areas cited by bank borrowers were the need for more fluid or flexible term sheets (36%), as well as greater flexibility from third parties (35%)

Borrowers' top recommendations for expediting future CRE loan deals

Greater efficiency is a top bank benefit

Altus research shows that borrowers perceive clear and meaningful differences in the nature of the partnership and service they expect to receive from each type of lender. For bank borrowers, the top driver for lender selection is lender stability. On a scale of 1 to 10, lender stability was rated the highest at 8.6, followed closely by timeliness or efficiency and lender credibility reputation, both of which rated 8.5.

Top benefits of working with banks

In a related question, bank borrowers are most likely to prioritize timeliness and efficiency, lender stability and credibility, and greater certainty of execution as top benefits of working with banks relative to other lender types.

Bank lending process moves faster

The process that all borrowers go through to secure commercial real estate loans is complex and challenging. Survey results show that bank borrowers go through more steps than non-bank borrowers when completing a typical loan deal, 8.4 steps on average compared to 6.3 for non-bank borrowers. In addition to taking more steps to complete a loan deal, bank borrowers also tend to engage a significantly larger and more diverse range of internal stakeholders in decision-making compared to those who work primarily with non-bank lenders.

Steps taken to complete a typical CRE loan deal: bank borrowers vs. non-bank borrowers

Yet despite going through more steps and involving more stakeholders, bank borrowers complete their deals significantly faster than those who primarily work with non-bank lenders. Roughly 7 in 10 bank borrowers (69%) claim it takes them one to three months to close the average deal, while only 45% of non-bank borrowers said the same.

Conclusion

The findings highlight the resilience and adaptability of CRE bank borrowers in today’s challenging lending environment. Borrowers remain cautiously optimistic about their ability to access financing and manage future risks. While they appreciate the efficiency and reliability that banks provide, there appears to be a growing demand for greater flexibility in their lending options.

For lenders, this optimism may present an opportunity to build stronger relationships by balancing efficiency with adaptability to meet borrower needs.

For more insights into borrower sentiment, lender preferences, and market outlook, download Lending for commercial property – The US borrower's perspective today.

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