Magazine article Mortgage Banking

Beige Book: Economic Uncertainty Stalls CRE Growth

Magazine article Mortgage Banking

Beige Book: Economic Uncertainty Stalls CRE Growth

Article excerpt

Several Federal Reserve districts reported tighter lending, particularly for commercial real estate (CRE) Joans, as economic uncertainty remained a theme in the Fed's September Beige Book.

New York district bankers said delinquency rates increased for commercial mortgages as well as residential mortgages and commercial and industrial loans. Vacancy rates rose "modestly" across the New York district, while asking rents were generally down 3 percent to 4 percent from one year ago, according to the Beige Book.

In the Kansas City district, asking rents also declined, and "as in previous surveys, a few banks tightened standards on their commercial real estate loans."

Most contacts in the district expected little improvement in coming months despite some commercial real estate stabilization in late July and August. Vacancy rates and leasing activity were flat compared with the previous survey, construction fell further, and office prices and rents continued to decline.

"Many commercial real estate contacts [in the Kansas City district] cited continued financing difficulties and high economic uncertainty among customers," the report said.

The Cleveland district reported commercial real estate lending as "particularly weak." Nearly all contacts, however, reported good or better nonresidential construction activity compared with last year at this time.

"Backlogs are reasonably healthy, though two builders noted that their backlogs are being depleted at a rapid pace," the report said. "Inquiries and new projects generally fall within the industrial and education categories. Most of our contacts expect little change in business conditions during the next six to 12 months, citing some weakness in inquiries and uncertainty about economic growth."

Chicago district contacts indicated that demand for distressed commercial properties continued to be strong and, despite high demand for liquidity, greater uncertainty about the economic outlook, regulation and the political landscape restrained credit supply. The Chicago district reported increased inquiries for commercial redevelopment and rising construction activity for public projects.

"Private nonresidential construction was again constrained by elevated vacancies and declining commercial rents," the report said. "Contacts also noted, however, an increase in inquiries and redevelopment projects of vacant commercial space."

Several commercial Realtors[R] in the Richmond, Virginia, district said uncertainty about the economy and confusion about recent reforms were key factors that held back sales and construction. …

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