In a survey of community banks and credit unions at the 2016 Sageworks Risk Management Summit, 42 percent of respondents said Commercial Real Estate, or CRE, lending was their primary focus for loan portfolio growth.
This reflects a larger industry trend. As noted in a recent American Banker article, many banks are increasing their investment in CRE loans, with many even exceeding the OCC guidance to limit CRE concentration to 300% of Risk Based Capital. While many community banks and credit unions see CRE as a new opportunity for growth, the OCC has expressed concerns about underwriting standards slipping as CRE exposure increases and cautions that increasing investments in commercial real estate lending should be accompanied by “prudent” concentration risk management.
As community banks and credit unions consider whether expanding CRE lending is for them, there are some basics of CRE that are worth remembering.