Large Banks Increase CRE Exposure In Q2, Outpacing Smaller Institutions

When it comes to loan growth, large banks are outpacing other institutions.

In a report released by Trepp that measures how banks across the country expanded their loan holdings in the last quarter, the firm found that large institutions — not including banks with more than $500B in assets under management — increased their construction, multifamily and commercial mortgage lending in Q2 by an overall 2.56%.

In three quick bullet points, here is what you need to know: 

1. Construction Lending

In the construction space, medium-sized banks took the lead, increasing their construction loan exposure by almost 6% in the last quarter, while large banks grew their construction loan portfolios by 1.06%. Community banks  grew their portfolios by 0.16% across the U.S.

These numbers contradict reports issued earlier this year that anticipated a slowdown in construction activity following a busy 2016.

2. Multifamily

In terms of overall multifamily loan growth across the U.S., medium-sized banks experienced the fastest growth during the quarter, expanding their multifamily loan portfolios by 2.21%. Following closely were large banks with 2% growth and community banks with 1.24% growth.

Honing in on specific regions around the country, medium-sized banks in the western U.S. experienced the fastest growth with a 7.32% increase. The Northeast saw a rise of 1.83% while in the Midwest, community banks saw their multifamily portfolios grow by 2.77%.

Community banks in the West did not perform as well this quarter, and their multifamily loan portfolios shrunk by 1.62%. Medium-sized banks in the South experienced a 2.35% decline. Large banks in the South increased their loan portfolios by 4.65%.

3. Commercial Mortgage Holdings

Medium-sized banks once again dominated when it came to commercial mortgage holdings and experienced an increase of 3.27%. Large banks expanded their portfolios by 1.39%, while community banks continued to climb by 0.96%.

Trepp attributes this sizable increase in commercial real estate exposure in Q2 to bank acquisitions, which was also the case in Q1. 

Banks and traditional lenders remain cautious in their commercial real estate lending practices, but as reflected above, these institutions are still lending to the industry. Traditional lenders have become more strategic in how they lend to commercial real estate players, making sure not to allocate too much of their credit to any one developer, sector or geographic area.