Fed Tightens Credit Standards For Construction, Development Loans
The Fed reported tighter credit standards for construction and development loans in Q4.
Jordan B. & Han-Gwon Lung
February 06, 2025
Together with
Good morning. The Federal Reserve reported tighter credit standards for construction and development loans in Q4, with large banks showing stronger demand for nonresidential and multifamily loans.
Today's issue is sponsored by Vintage Capital: invest in recession-resilient Mobile Home Parks.
👉 You currently have 0 referrals, only 1 away from receiving B.O.T.N Multifamily Deal Screener .
Market Snapshot
|
|
||||
|
|
*Data as of 02/05/2024 market close.
Tighter Belts
Fed Finds Credit Standards Tightening for CRE
While demand for bank business loans grew, commercial real estate lending faced stricter credit standards in late 2024.
Lending tightens: According to the Federal Reserve’s latest Senior Loan Officer Opinion Survey (SLOOS), a modest net share of banks tightened standards for construction, land development, and nonfarm nonresidential loans in Q4 2024. Multifamily loan standards, however, remained mostly unchanged.
Mixed demand: Demand for construction and land development loans weakened slightly, while nonfarm nonresidential and multifamily financing saw mixed trends. Large banks reported stronger demand for the latter, while smaller banks saw demand decline across all CRE loan types.
Breakdown by bank size:
-
Among large banks surveyed, 14.3% tightened standards for construction and land development loans, while 81% left them unchanged. For nonfarm nonresidential lending, 9.5% reported tightening, and the same percentage applied to multifamily loans. Demand for multifamily and nonresidential loans increased slightly, while construction loan demand remained flat.
-
Smaller banks painted a different picture, with 14.3% reporting moderately weaker demand for construction and land development loans. Multifamily loans also saw declining interest, with 19.5% of these banks noting reduced demand. A small share, around 4.8%, significantly tightened construction loan standards.
➥ THE TAKEAWAY
Why it matters: Tighter lending standards signal a more cautious banking environment for CRE, especially for construction and land development. But with large banks still seeing demand in key sectors, financing opportunities remain—just with stricter terms.
TOGETHER WITH VINTAGE CAPITAL
Introducing Vintage's MHP Fund
Invest in recession-resilient Mobile Home Parks with Vintage Capital. Invest directly or in a fund of 20+ underlying assets (1031s also available). Access stable, income-generating properties with consistent demand and low tenant turnover.
Now is the time to act: Current market conditions are creating opportunities to acquire properties at attractive valuations.
Our fund targets a 15%-17% IRR and makes monthly distributions, which provides a steady income stream alongside strong upside potential and tax-efficient benefits.
Why Mobile Home Parks?
-
Recession-Resilient: Affordable housing demand drives stable returns in any economy
-
High Tenant Retention: The average MHP tenant stays 10-12 years (compared to 2-3 in Multifamily)
-
Proven Expertise: $80MM+ track record in mobile home park investments.
-
Tax-Smart Investing: Bonus depreciation offers tax advantages.
*Disclaimer: This is a paid advertisement. See full disclosure at the bottom of the newsletter.
✍️ Editor’s Picks
-
Real Estate Investing: Learn to analyze real estate investments using real-world financial modeling and analysis as it’s done at the world’s leading real estate investment firms. Save $300 with code CREDAILY: Feb 10 Deadline.
-
Musk’s budget cuts: Elon Musk is spearheading efforts to cut the GSA’s budget by 50%, applying his cost-cutting approach to streamline federal real estate and operations.
-
State Farm’s ambitions: In response to the recent devastating California wildfires, State Farm wants a 38% rental rate insurance hike and a 15% condo rate hike, citing its fire-related losses.
-
Bullish outlook: Blackstone's BREIT enjoyed strong 2024 performance, thanks to positive economic trends and investments in data centers, housing, and industrial assets.
-
Las Vegas luxury: Las Vegas rises to 8th on the luxury home market ranking, outpacing LA, thanks to lower taxes, entertainment, and growing economic diversity.
-
Defying forecasts: The US economy posts another strong growth quarter, driven by consumer spending, exceeding expectations despite previous pessimistic forecasts.
🏘️ MULTIFAMILY
-
Good cause eviction: New York's "good cause eviction" law, meant to protect tenants, may unintentionally raise rents as landlords use the law's soft cap as an anchor for higher rent hikes.
-
Bay Area buyer: Essex Property Trust (ESS) acquired The Plaza, a 307-unit complex in Foster City, for $161M, continuing its buying spree in San Mateo County.
-
HUD secretary: The U.S. Senate confirmed Scott Turner as the Secretary of Housing and Urban Development (HUD) in a 55-44 vote.
-
Housing crisis: As student housing rents climb faster than traditional multifamily rates, affordability concerns are mounting for students balancing tuition, work, and living costs.
🏭 Industrial
-
Leaving the lease: Google (GOOGL) backed out of a 1.05 MSF lease in Northlake, TX, after spending millions on a data center buildout it never occupied.
-
Phoenix portfolio: Phoenix Investors acquired 3.1 MSF of industrial assets across Milwaukee and Michigan, boosting its national portfolio to over 80 MSF.
-
Selling Fort Worth: Hopewell Development and GTIS Partners sold Champions Circle Business Park, a 361 KSF industrial campus in Fort Worth, to Stonelake Capital Partners.
🏬 RETAIL
-
Empty stores: San Francisco’s retail vacancy rose to 7.7% as a tax on vacant storefronts fails to fill spaces, with landlords citing rising crime and fewer tenants.
-
Filing for bankruptcy: Bargain Hunt’s parent company, Essex Technology Group, filed for Chapter 11 bankruptcy, listing $10M–$50M in assets and $50M–$100M in liabilities.
🏢 OFFICE
-
Refi of the day: The Irvine Company is set to close a $1.5B refinancing deal for the MetLife Building with a 6.25% interest rate, up significantly from the previous 3.6%.
-
Sold at discount: The 222.67 KSF former Lockheed Martin campus in Calabasas sold for $69M, a 15% discount in one of the top LA office sales of the year.
🏨 HOSPITALITY
-
White House hotel: Georgetown Co. reached a deal to buy the historic Hotel Harrington near the White House, with plans for potential redevelopment into housing, a hotel, or a social club.
-
Prestigious condos: The Waldorf Astoria's first condo sales close as the long-awaited reopening of the historic hotel nears, with 375 luxury units and a renovated hotel expected to open this spring.
A MESSAGE FROM BEST EVER CRE
Join the Best in CRE at Best Ever Conference
Join elite CRE investors managing $50B+ in assets at the 2025 Best Ever Conference.
-
Network with proven dealmakers (95% closed deals in the last 9 months)
-
Learn market-beating strategies from industry titans Jay Parsons and Joe Fairless
-
Vet sponsors and deals face-to-face
-
Unlock $400M+ in unplaced capital opportunities
-
Access year-round networking through our exclusive digital community
CRE Daily subscribers save 25% with code credaily25 – secure your ticket today!
*Disclaimer: This is a paid advertisement. See full disclosure at the bottom of the newsletter.
📈 CHART OF THE DAY
With rising interest rates driving up yields and pushing down property values, a price-to-earnings (P/E) analysis suggests real estate may be an attractive buy.
You currently have 0 referrals, only 1 away from receiving B.O.T.N Multifamily Deal Screener .
What did you think of today's newsletter? |
