US regional banks are winning the greatest share of CRE originations as CMBS falters.
New York Community Bank is a small fish in a big pond. Specialising in multifamily loans in New York City, the bank can’t compete with the likes of Wells Fargo or JPMorgan on Manhattan’s prime assets, lending instead on small- to mid-sized apartment buildings in the Upper West Side or Bronx.
And yet, it was regional banks like NYCB that took home the largest share of commercial real estate loans during the first half of this year.
Of the $183 billion in first mortgage US originations during the first two quarters of 2016, regional and local banks accounted for 21 percent ($38.4 billion) of originations, up from 16 percent in 2015, according to Real Capital Analytics.
NYCB ranked number one among regional and local banks, but only 18th overall with $2.5 billion in originations, demonstrating the number of smaller players stepping in to fill the gap left in part by the decline in CMBS lending (Wells topped RCA’s list with $19.5 billion in originations).
During the first half of this year, CMBS captured just 9 percent of market share, according to RCA, representing a significant role reversal with the regional banks. In 2012, CMBS lenders had 23 percent of the market with regional and local banks accounting for 9 percent.
Several commercial real estate debt teams at regional and local banks across the US told Real Estate Capital that their increase in market share is due to the fact they provide the $5 million-$50 million loans no longer offered by CMBS lenders and which are often smaller than the deals larger commercial banks, life companies and private firms target.
“Banks are filling a gap left by the CMBS market,” says Paul Schmidt, EVP and head of commercial real estate at the Wisconsin-based bank.
He adds that many borrowers with mid-sized loans on properties across Wisconsin, Illinois, Michigan and Ohio – especially in office and retail – have CMBS loans coming due. But instead of re-upping with CMBS, they are choosing three- to seven-year loans from their local bank instead.
“A fair amount of business that we have done in last three years, including value-add and bridge loans, might have otherwise been done by CMBS,” says Dan Easley, head of all commercial real estate business for the Bank of Texas parent company.
Total CMBS issuance this year reached $44.8 billion through the end of September, according to Trepp. The firm predicts that total issuance will not even reach $65 billion by the end of the year – a 30 percent drop from 2015 – based on the 15 deals still in the pipeline for the final quarter.
If the CMBS numbers play out as predicted, NYCB and other small fish will continue to fill the void, using strength in numbers to edge out their colossal commercial counterparts.