Commercial Real Estate Lending Competition Intensifies as Banks Re-enter Market
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The resurgence of bank lending to the commercial real estate industry has created stiff competition in the market. According to a report by Bisnow, commercial real estate debt issued by banks increased by 85% compared to the previous year after banks worked to clean their books of underperforming debt.
Richard Mann, Houston region president at Frost Bank, noted that the competition is intense due to a limited number of solid developers and desirable projects available. Frost Bank, based in San Antonio, reported a commercial real estate loan book of just above $10 billion as of September 30, 2023, up from just below $10 billion at the end of the prior year.
Anna Pawlik, executive vice president of commercial real estate banking at Frost, emphasized that while the bank is competitive, it maintains a disciplined approach to lending and is unlikely to adjust its terms beyond its comfort level.
Frost Bank sees significant activity in retail development and some industrial projects in Houston. National bank CRE debt origination has returned to levels not seen since 2019, making banks the most common source of commercial real estate financing, accounting for approximately 38% of all CRE lending this year.
The report from Newmark indicates that CRE origination activity rose by 48% year-over-year for the first three quarters of 2024, reflecting renewed confidence among investors and lenders. This increase spans all major sectors, including office, senior housing, and retail.
Lending activity is expected to continue to rise as about $2 trillion in debt maturities are due by 2027, with $573 billion of those loans at risk of distress. Additionally, recent merger and acquisition activity, such as SouthState Corporation merging with Independent Financial and Veritex becoming part of Huntington Bank, could influence bank lending strategies in Texas.
Anna Pawlik remarked on the evolving landscape, suggesting that it will be interesting to see how these dynamics will unfold.