Commercial real estate owners and buyers alike continue to watch the market in the midst of a major bank crisis that could have a serious impact on the future of lending and how investors plan to move forward in light of this issue.
According to the NY Times, two major banks connected with commercial real estate holdings and lending collapsed in March, leaving the market unstable and many investors concerned about how this collapse could affect the commercial real estate market for the rest of the year.
Cause and effect of the collapse
Lockdowns to prevent the spread of the pandemic slowed bank loans considerably and caused a significant slowdown of those willing to take out loans for commercial real estate. This drop in loans affected lending institutions, such as the two collapsed banks, because the lack of new loans prevented them from generating money. A third bank nearly followed suit but managed to stabilize; however, investors fear for its future.
Banks and borrowers share concerns
As a possible recession looms, both financial institutions and those who planned to borrow money to build commercial real estate buildings share concerns about the future of lending itself. While banks continue to loan money to investors, they likely fear a reduction in the number of loans requested because of nervous investors. Investors may hesitate to approach banks for a loan because they fear more stringent guidelines and qualifications, especially those with new or growing businesses.
While lenders and borrowers hope that other banks can recover from a loan slowdown, the market currently remains in question.