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Are Banks Slowing Commercial Real Estate & Development Lending?

The beginning of the pandemic unearthed a new trend in the real estate market. Prices and demand surged as inventory fell. The industry is experiencing:

  • Bidding wars
  • All-cash offers
  • Foregoing inspections
  • And more

Up until recently, the historically low-interest rates garnered attention from potential buyers country wide. Although, the FED will be raising the rates again, demand continues to increase. But—are banks keeping up with the demand? For commercial and multifamily lending, it is not looking likely.

Here are the pertinent facts you need to know about banks and their slow response to commercial and developmental lending:


Are Banks Prepared to Keep Up with Demand Increase?

Residential real estate interest is through the roof. The commercial market is steadily increasing in demand—experts state with an increase of 11%—yet still falls behind their sister properties. Why is this happening?

Although more investors are hitting the market looking for lenders, not all banks are showing interest in jumping on board. In regard to commercial mortgage lending, banks are proceeding with caution—if at all. Banks are pulling back from proceeding due to uncertainty, higher costs of interest restrict proceeds, and the uncertainty prolongs the willingness for the risk. 


Why is Commercial Lending Falling Behind?

Banks are notorious for being one of the most lucrative businesses in the world; however, many banks may fall behind in staying up-to-date on technological advances within their industry. 

Here are several reasons they continue to fall behind:


Slow to Adapt & Change

Commercial lenders are known for being slow in adopting new, innovative technologies. According to analysts, over 43% of banks continue to use COBOL—a programming language that was designed and implemented before the internet existed. Residential lenders and banks are on board, yet commercial lending seems to not be interested in joining the digital age.


Residential Lending is On Board

Residential lenders differ from commercial lenders as they are quick to adapt to technological advances within the market. These lenders are aware of the importance of modernizing their approach and continue to adapt to meet the new demands of the market and their customers. Over 92% of residential lenders offer online options for applying for a residential loan.


ARE THERE OTHER OPTIONS?

As many lenders are not willing to wait for commercial lenders to join the digital crusade, other options are being sought. Non-bank­ commercial lenders are in high demand as traditional fails to meet consumer needs.

Private lenders can pick up the slack of traditional banks. Non-bankers are ready to offer funds to investors for developmental and commercial properties. This can involve risks but may be a better option than uptight banks.

Non-bank commercial lenders approach their money loans differently. They are more prepared to take risks other lenders will not. They have the time and energy to dedicate to consumers as they are not engaged in other huge projects.


Hard Money Loans

Hard money lenders previously held a poor reputation—but the rules have changed. Hard money loans are excellent options as lenders can offer billions of dollars, including for development projects. With easy capital at hand, hard money and non-bank loans continue to grow in popularity.

Non-bank money lenders do not shy away from large-scale projects as commercial banks do. Their investments sources are typically linked to pension funds, endowments, investment banks, and insurance companies. Private lenders do not have this problem.

BOTTOM LINE

Yes, it is true that banks truly are slowing lending commercial real estate and development lending. Therefore, it is imperative to consider turning to non-bank lenders as the solution.

Commercial and traditional lenders continue to wallow in archaic measures while their counterparts advance and adapt to modern-day technologies. Non-bank lender, in general, move quicker. Whereas bank lenders offer commitment letters not generally more than two weeks prior to closing, non-bank lenders can close in as little as 30 days]. 

In the end, there is simply no comparison of which route to go for a commercial and development loan.

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WHO WE ARE

JLJ Capital is a middle-market private commercial real estate lender dedicated to providing short-term financing for multi-family and mixed-used real estate assets across U.S. with a focus on New York, New Jersey, and Texas.

MEET THE JLJ CAPITAL TEAM

Get to know our team of recognized industry veterans in commercial lending, real estate development, and hotel management with over 30 years of experience.
Jonathan Lewis

Jonathan Lewis

Chief Executive Officer
Justin Podolsky

Justin Podolsky

Partner

Robert Kim

Robert Kim

Managing Director – Finance

Lowell Bacchus

Lowell Bacchus

Managing Director – Credit

Kunyang (Dan) Li

Kunyang (Dan) Li

Vice President – Underwriting

Casey DeFluri

Casey DeFluri

Senior Associate – Underwriting

Alec Oriolo

Alec Oriolo

Associate – Originator

Sophie Zhang

Sophie Zhang

Financial Analyst