European Debt Continues to Influence U.S. Lenders

Europe’s ongoing debt crisis continues to have an impact on U.S. commercial real estate investment markets, according to Cassidy Turley’s February 2012 Macro Forecast. Lending patterns among the top three commercial real estate financing sectors illustrate the impact of financial woes overseas.

Life companies were the only major commercial real estate lending sector that resumed normal lending levels last year. Commercial mortgage-backed securities lending was spotty in 2011 with approximately $30 billion in CMBS issued. Industry analysts expect CMBS lenders to issue between $30 billion and $50 billion this year.

Cash-rich commercial banks are the “wild card” in the lending scene, according to the report. At year-end 2011, commercial banks had $1.5 trillion in cash assets, which is approximately five times greater than normal levels. However, the sector is not freely lending money “on net” for commercial real estate. In 2011, U.S. banks decreased their commercial real estate loan volume by $200 billion.

A primary reason for commercial banks’ tight purse strings is Europe’s debt and liquidity issues, with nearly 77 percent of all existing U.S. bank capital exposed to overseas debt, according to the survey. “Until European policymakers arrive at a plan to address the euro-zone’s debt and liquidity issues, U.S. banks will continue to sit on their cash reserves to protect themselves from the potential of huge losses,” according to the report.

However, prospects in Europe are improving slowly. “At the recent Brussels Summit, leaders of the European Union governments agreed on important measures that move the region closer to a stronger fiscal union. Moreover, the Greek parliament approved a further round of budget cuts, a requirement before it could receive its second bailout ($171 billion),” according to the report.