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PHILADELPHIA-After two quarters of relative optimism, lenders across the country are beginning to brace for a possible economic downturn, according to the newly released "Lending Climate in America" survey by locally based Phoenix Management Services. Of the lenders polled, 59% polled predicted a softening of their loan portfolio over the next six to 12 months and an additional 27% said they anticipate portfolio deterioration within 12 to 24 months.
"There's not going to be a catastrophic dry-up of liquidity, but there will be adjustments in commercial real estate lending," Michael Jacoby, managing director and shareholder of Phoenix Management, tells GlobeSt.com. He conceded the latest survey did not ask specific questions about the commercial real estate loan sector.
"Lending institutions will take a harder look at potential risk. It's been a buyer's market in being a borrower," Jacoby says, basing his conclusions on ongoing dialogue with lenders. "I wouldn't say there will be a turn in the tide, but lenders will be more cautious about both the loan portfolios they hold and the loans they make.
"Very credit-worthy commercial real estate borrowers will likely still be greeted with enthusiasm," Jacoby continues, "but developers or buyers with less demonstrated credit worthiness will face stricter scrutiny."
While the Fed, which dictates interest rates, is now keeping the cost of funds stable, Jacoby says its future moves are unclear. "Other macro-economic factors could lead to higher borrowers' costs," he adds. Among those factors are fuel prices and the ramifications of a previously "overheated residential real estate market that is losing some of its sizzle." All impact the general economic climate, he notes.
For the second half of this year, the 88 lenders in the polling predicted the economy would perform at a C-plus level, down from the B-minus level they predicted a quarter ago. They were equally gloomy about the economy's performance during the first half of 2007. Most said it would perform at a low C level, down from the solid C level they assigned it three months ago.
Founded in 1985, Phoenix is an advisory firm with a specialty in investment banking services. Its quarterly studies gauge shifts in lenders' attitudes toward the economy.
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