Borrowers are expecting to get back in to hock this year as bank lending standards loosen.
According to the NREI’s Ninth Annual Borrower Trends Survey, borrowers are expecting favorable conditions throughout 2013.
The survey results show that 55 percent of commercial borrowers expect their debt to increase in 2013, with only 17 percent expecting their debt load to contract. This is in comparison with 2012 results which had just 40 percent expecting their debt to increase and 25 percent expecting it to decrease.
Both borrowers and lenders are optimistic, with 68 percent of lenders expecting availability of credit to increase this year, while 54 percent of borrowers believe the same.
“We are finally seeing some loosening of bank lending standards and the commercial real estate market has been quick to jump on the available capital,” said Terry Robinson, president of the Off Market Association. “Increased lending has helped our members close off market deals already in 2013 and we expect the pace of lending to increase.”
In 2012 the most common reason for borrowing was refinancing (53 percent). Roughly 25 percent of respondents said they borrowed for acquisition, new development or renovation respectively. Nearly 35 percent of the respondents did not borrow at all in 2012.
Borrowers were quite conservative in 2012, with 40 percent claiming to have borrowed on more than 20 percent of their assets and the remaining 60 percent borrowing on less than 20 percent of their assets. Long term financing was by far the most common activity (81 percent), followed by construction loans (44 percent) and lines of credit (36 percent).
While most borrowers in the survey (92 percent) worked with commercial banks, there were also 8 percent who said that they received loans from insurance companies and 8 percent who used CMBS loans.
Borrowers are most concerned with the certainty of approval when working with lenders. 66 percent noted that this was very important. In addition, 32 percent responded that flexibility of terms was very important and 32 percent cited speed of approval as very important.
Lender relationships, low interest rates and fees, and post closing service were found to be considerably less important.
Borrowers are also beginning to brace for increasing interest rates. Survey respondents indicated that they plan on using short term adjustable loans less this year, relying instead on long term fixed rate debt. Only 26 percent of respondents see their use of short term debt as increasing, while 28 percent plan on decreasing their use of short term debt. This is in contrast with 2012 when only 17 percent of respondents saw their short term debt usage decreasing.
Borrowers are currently finding LTVs as having the greatest impact on their ability to secure financing.
Other issues noted were the cost of capital, debt/service ratios and the health of the U.S. economy.