EDR Insight
EDR Insight ®
Researching your top challenges
June 1, 2012
Strategic Brief for Environmental Professionals CRE Lending Recovering, Risk Aversion Still High, Lender Survey Shows Environmental professionals serving the lending sector can take some comfort in the results of the latest EDR Insight 1Q12 Quarterly Benchmarking Survey of Financial Institutions. These findings are consistent with intelligence shared at EDR's 2012 Client Summit in Scottsdale in mid-May by Tom Fink, senior vice president at EDR’s sister company, Trepp LLP, in his assessment of the current status of different sources of commercial real estate debt. Noting that different sources of funding are getting back into the game at different rates, Fink characterized commercial banks as “recovering.” Also this month, the recent National Association of Realtors’ Commercial Real Estate 2012 Lending Survey concluded that financial institutions are extending credit for commercial property purchases cautiously, and credit is particularly hard to come by on the smaller (i.e., less than $2.5 million) deals. Multifamily remains the preferred asset class, as it is lower-risk than other property types, and according to CoStar, institutions are also just starting to get more comfortable extending credit for construction and development loans for the first How would you characterize your institution's standards for environmental time in years. This quarter’s findings support the latest trend that due diligence in commercial real estate lending in 2012 versus this time lending is a mixed bag: some larger institutions are ramping up the last year? property loans on their books, while others are doing so only very selectively or not at all. The collective sentiment of environmental risk managers at financial institutions across the country is one of cautious optimism as they look for growth opportunities, amid tight underwriting standards. Asked to rate their institution’s risk tolerance in 1Q versus 4Q, a significant 80% remain at 4Q’s high levels. In the previous 4Q survey results, financial institutions were responding to the market unrest of the third quarter, and risk aversion spiked as a result. Interestingly, one respondent shared that “our tolerance is the same. The shift has been in the properties we are seeing. We are seeing more high risk properties today.” Asked how they would characterize environmental due diligence standards in 2012 versus last year, those respondents selecting “more stringent” more than doubled to 25% this quarter versus 12% in the 4Q survey. Another indicator of tight underwriting was this quarter’s increase in Phase II ESAs. On average, 12% of Phase I ESAs today proceed to Phase II ESAs, compared to only 6% in last quarter’s survey. The percentage of respondents currently liquidating commercial real estate loans and REO is still high (47% and 76%, respectively), indicating that this sector is still only in the early innings of this process. Financial institutions are already conducting environmental due diligence in support of high volumes of refi requests and in doing this, are starting to run into problems. Respondents reported difficulties finding the previous environmental reports, poor report quality, new environmental issues stemming from property neglect, and findings that do not reflect today’s more stringent standards. One respondent also shared that “on loan maturities, we’re seeing issues from old reports that were not investigated and now require due diligence.” Looking ahead to the rest of this year, the 1Q12 survey results also reflect a slightly greater optimism about higher commercial loan originations. Nearly 80% of respondents expect higher originations in 2012 versus 2011, compared to only 72% in the fourth quarter. Asked about 2012 expectations on other types of activity driving due diligence, only 11% of respondents expect an increase in foreclosure volume this year from 2011, while expectations are higher for bank property purchases (51%), refinancing (27%) and REO sales (21%). Nearly 30% expect to rely more on the services of outside environmental firms for due diligence in 2012, and only 3% expect less reliance. Overall, these latest results reflect a sector anticipating higher activity as property loans and assets change hands, either due to loan maturities and refi requests, or as banks move problem loans off their books and start slowly growing commercial real estate originations. The Mortgage Bankers Association forecasts an increase in commercial and multi-family originations of 17% in 2012. Although many financial institutions are still working through a sizable volume of distressed commercial real estate assets, an increasing number have decided the time is right to jump back in. These latest quarterly results support that lenders remain conservative with stringent underwriting practices in place, but they are increasingly returning to the table and lending volumes are set to continue their slow climb, barring some unforeseen market jolt.
EDR Insight ®
Researching your top challenges
June 1, 2012
Do your environmental consultants typically charge the bank a premium if a faster Phase I ESA turnaround time is required? *A significant 69% of respondents have environmental consultants who charge a premium for faster TAT compared to only 39% in 4Q11. *This finding emphasizes the importance of efficiency and speed in due diligence, a point supported by a number of panelists at EDR's recent client summit.
Source: Tom Fink, Trepp, EDR's Annual Client Summit - May 2012
How do you expect the volume of your institution's EDD in each of the following areas in 2012 compare to 2011 levels? *Only 11% of respondents expect more foreclosures in 2012, while expectations are higher for property purchases, refis and REO sales.
EDR Insight ®
Researching your top challenges
Looking ahead to 2012, what are your expectations for commercial real estate lending volume relative to 2011?
Questions or comments? Ashley Gowen| Research Analyst Email: [email protected] www.edrnet.com/edrinsight Unauthorized reproduction, distribution or use of EDR Insight’s Survey Results Summary is strictly prohibited. © 2012 Environmental Data Resources Inc. All rights reserved.
June 1, 2012
Researching your top challenges
June 1, 2012
Strategic Brief for Environmental Professionals CRE Lending Recovering, Risk Aversion Still High, Lender Survey Shows Environmental professionals serving the lending sector can take some comfort in the results of the latest EDR Insight 1Q12 Quarterly Benchmarking Survey of Financial Institutions. These findings are consistent with intelligence shared at EDR's 2012 Client Summit in Scottsdale in mid-May by Tom Fink, senior vice president at EDR’s sister company, Trepp LLP, in his assessment of the current status of different sources of commercial real estate debt. Noting that different sources of funding are getting back into the game at different rates, Fink characterized commercial banks as “recovering.” Also this month, the recent National Association of Realtors’ Commercial Real Estate 2012 Lending Survey concluded that financial institutions are extending credit for commercial property purchases cautiously, and credit is particularly hard to come by on the smaller (i.e., less than $2.5 million) deals. Multifamily remains the preferred asset class, as it is lower-risk than other property types, and according to CoStar, institutions are also just starting to get more comfortable extending credit for construction and development loans for the first How would you characterize your institution's standards for environmental time in years. This quarter’s findings support the latest trend that due diligence in commercial real estate lending in 2012 versus this time lending is a mixed bag: some larger institutions are ramping up the last year? property loans on their books, while others are doing so only very selectively or not at all. The collective sentiment of environmental risk managers at financial institutions across the country is one of cautious optimism as they look for growth opportunities, amid tight underwriting standards. Asked to rate their institution’s risk tolerance in 1Q versus 4Q, a significant 80% remain at 4Q’s high levels. In the previous 4Q survey results, financial institutions were responding to the market unrest of the third quarter, and risk aversion spiked as a result. Interestingly, one respondent shared that “our tolerance is the same. The shift has been in the properties we are seeing. We are seeing more high risk properties today.” Asked how they would characterize environmental due diligence standards in 2012 versus last year, those respondents selecting “more stringent” more than doubled to 25% this quarter versus 12% in the 4Q survey. Another indicator of tight underwriting was this quarter’s increase in Phase II ESAs. On average, 12% of Phase I ESAs today proceed to Phase II ESAs, compared to only 6% in last quarter’s survey. The percentage of respondents currently liquidating commercial real estate loans and REO is still high (47% and 76%, respectively), indicating that this sector is still only in the early innings of this process. Financial institutions are already conducting environmental due diligence in support of high volumes of refi requests and in doing this, are starting to run into problems. Respondents reported difficulties finding the previous environmental reports, poor report quality, new environmental issues stemming from property neglect, and findings that do not reflect today’s more stringent standards. One respondent also shared that “on loan maturities, we’re seeing issues from old reports that were not investigated and now require due diligence.” Looking ahead to the rest of this year, the 1Q12 survey results also reflect a slightly greater optimism about higher commercial loan originations. Nearly 80% of respondents expect higher originations in 2012 versus 2011, compared to only 72% in the fourth quarter. Asked about 2012 expectations on other types of activity driving due diligence, only 11% of respondents expect an increase in foreclosure volume this year from 2011, while expectations are higher for bank property purchases (51%), refinancing (27%) and REO sales (21%). Nearly 30% expect to rely more on the services of outside environmental firms for due diligence in 2012, and only 3% expect less reliance. Overall, these latest results reflect a sector anticipating higher activity as property loans and assets change hands, either due to loan maturities and refi requests, or as banks move problem loans off their books and start slowly growing commercial real estate originations. The Mortgage Bankers Association forecasts an increase in commercial and multi-family originations of 17% in 2012. Although many financial institutions are still working through a sizable volume of distressed commercial real estate assets, an increasing number have decided the time is right to jump back in. These latest quarterly results support that lenders remain conservative with stringent underwriting practices in place, but they are increasingly returning to the table and lending volumes are set to continue their slow climb, barring some unforeseen market jolt.
EDR Insight ®
Researching your top challenges
June 1, 2012
Do your environmental consultants typically charge the bank a premium if a faster Phase I ESA turnaround time is required? *A significant 69% of respondents have environmental consultants who charge a premium for faster TAT compared to only 39% in 4Q11. *This finding emphasizes the importance of efficiency and speed in due diligence, a point supported by a number of panelists at EDR's recent client summit.
Source: Tom Fink, Trepp, EDR's Annual Client Summit - May 2012
How do you expect the volume of your institution's EDD in each of the following areas in 2012 compare to 2011 levels? *Only 11% of respondents expect more foreclosures in 2012, while expectations are higher for property purchases, refis and REO sales.
EDR Insight ®
Researching your top challenges
Looking ahead to 2012, what are your expectations for commercial real estate lending volume relative to 2011?
Questions or comments? Ashley Gowen| Research Analyst Email: [email protected] www.edrnet.com/edrinsight Unauthorized reproduction, distribution or use of EDR Insight’s Survey Results Summary is strictly prohibited. © 2012 Environmental Data Resources Inc. All rights reserved.
June 1, 2012
