Banks Are Pulling Back On CRE Loans

Banks are pulling back loans from commercial real estate, Walker & Dunlop CEO Willy Walker told CNBC earlier this week.

“You look at the broader commercial real estate markets and where spreads have gone and CMBS and CLOs, that market is for all practical purposes closed down right now,” he told the network’s Squawk on the Street segment. “Spreads have gapped out so much that getting loans securitized through that execution is tough. I think the big question right now is why aren’t banks lending…banks are trading at ridiculously low multiples because they’re not lending.”

Walker said banks “have all pulled back and that’s led the entire chain to stop moving.”

Banks are “bracing for something to happen but it certainly has not started to happen,” he told CNBC. “From an overall credit standpoint it’s an incredibly clean book.”

Walker also delved into what’s behind the massive rent increases for the multifamily sector, saying that “until you get more supply in single family and multifamily rents will continue to go up.”

“The big problem is, if you think about it, we need to have more than 1 million single family starts going, and with the current financing market and interest rates at 7% on a mortgage it’s very hard for shovels to go into the ground to the single family side,” he said.  And on the multifamily side, it’s an 18 to 24 month lag as to when the product will deliver.

“It’s really a supply and demand issue,” Walker said. “Apartment buildings across the country are full and they are able to push rents right now. And until we see more supply come online you’re going to continue to have that problem.”

Walker predicts rents will continue to go up, noting that everyone Walker & Dunlop works with is anticipating somewhere north of a 5% rent increase next year.