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A Few Insights into Commercial Real Estate and Consumer Lending Trends

Posted on May 7, 2024 Published by

In the construction industry, we have seen a landscape characterized by robust pipelines, with lead times for new projects and remodels stretching beyond the usual bounds. Yet, as with any tide, there comes a time for ebb and flow. Currently, we find ourselves at a juncture where pipelines, though still formidable, are beginning to recede. Learn more now with A Few Insights into Commercial Real Estate and Consumer Lending Trends.

The Impact on Multi-Family Projects

Among the sectors feeling the impact most keenly are multi-family projects. Here, two factors have made waves: fluctuating interest rates and a surplus of supply saturating certain markets. Projects that started without locked interest rates now face the consequences, with proforma cash flows teetering near breakeven or even dipping below. Meanwhile, markets experiencing an oversupply are starting to see rising vacancy rates, prompting concessions like free rent to attract tenants.

Navigating the Repricing of Investment Commercial Real Estate Loans

Investment commercial real estate loans, too, are navigating choppy waters. Repricing has emerged as a key challenge, particularly for loans undergoing their first renewal after the initial three- or five-year term. Cash flows in these instances often hover at or slightly below breakeven, underscoring the complexities of the current economic climate.

Challenges in Consumer Lending

On the consumer lending front, a nuanced picture unfolds. While credit card borrowing and defaults are experiencing a slight uptick, the auto loan sector faces its own set of challenges, with an increase in slow payments and delinquencies. These fluctuations underscore the importance of vigilance in monitoring loan portfolios for signs of changing risk.

Looking Ahead

Despite these challenges, there remains a sense of cautious optimism about the economy’s overall performance.  However, events on either a global or local scale, could impact borrower performance. It’s incumbent upon financial institutions to remain proactive, utilizing tools like Pass/Watch ratings to effectively manage risk amidst uncertainty.

In conclusion, the construction industry and consumer lending stand at a crossroads, where resilience and foresight are paramount. By embracing adaptability and remaining vigilant to shifting currents, stakeholders can navigate the complexities of the evolving landscape with confidence and agility. Using A Few Insights into Commercial Real Estate and Consumer Lending Trends will help you be prepared.

Interested in learning how we can help your risk management efforts? Use this link to schedule time and learn more about Enlighten Financial here.

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— Bill Beardsley, President, Michigan Business Connection
“By questioning some of our methodologies, Enlighten has helped us say, ‘Okay, this is where we need to train staff better and focus on so that they understand what they're doing better.”
— Robert McPherson, VP of Risk Management, Peoples State Bank
“The organization of the communication — before, during, and after the reporting process — was certainly better with Enlighten than what I've experienced with a lot of auditors.”
— Bill Beardsley, President, Michigan Business Connection
“The staff at Enlighten have been available for questions, in addition to the engaged work that they do. They've been very helpful as a resource beyond the major audit.”
— Meghann Kasper, Chief Credit Officer, Bank First
“Enlighten gives us a very good second set of eyes on our transactions. They're not afraid to challenge us on some of the work that we've done, which is what is needed. I don't need to pay somebody to tell me I'm good, I need to pay somebody to tell me where I've made mistakes.”
— Robert McPherson, VP of Risk Management, Peoples State Bank
“Enlighten provided industry best practices that weren’t going to show up in an audit report. They would say, ‘Hey, I noticed you do this. This is really unique, you do a really great job of it.’ And then they might add, ‘Some other clients that I have are doing something like this.’”
— Bill Beardsley, President, Michigan Business Connection
“By questioning some of our methodologies, Enlighten has helped us say, ‘Okay, this is where we need to train staff better and focus on so that they understand what they're doing better.”
— Robert McPherson, VP of Risk Management, Peoples State Bank
“The organization of the communication — before, during, and after the reporting process — was certainly better with Enlighten than what I've experienced with a lot of auditors."
— Bill Beardsley, President, Michigan Business Connection