Commercial real estate loan growth continued to slow at U.S. banks in the fourth quarter of 2017 with moderating rent growth starting to gain bankers' attention.
The number of U.S. banks concentrated in commercial real estate loans fell to 490 at the end of the fourth quarter, down seven from the previous quarter. That's about 9% of the 5,722 institutions that filed call reports for the fourth quarter. More than 90 companies that were considered concentrated in CRE at the end of the third quarter dropped off the list, either by lowering their concentration levels or being acquired.
Banner Corp., for example, had been concentrated in CRE loans in the third quarter of 2017, but brought its CRE loan portfolio below 300% of total risk-based capital by the end of the year. Chief Credit Officer Richard Barton noted growth in multifamily rent is moderating, but the multifamily properties that the bank is financing are still filling up after construction.
"We continue to see excellent lease-up activity on our multifamily construction loans with these loans paying off in a timely manner," he said in a Jan. 25 conference call. "It should be noted, however, that we are observing moderation in the growth of multifamily rents."

Note: Figures reported in this article may not match figures reported in prior articles about CRE concentration due to the frequent restatement of call reports.
This rent moderation extends to commercial properties in some cases, spurring Starbucks Corp. founder and CEO Howard Schultz to tout the lower business costs in a Feb. 27 memo to executives. "Trust me, rents are coming down!" he wrote. "This is not going to be a cyclical change in our occupancy expenses, but a permanent lowering of the cost of our real estate."
Citizens Financial Group Inc. CFO John Woods, however, pointed out some markets had become overheated. "We're keeping a close eye on CRE," he told investors during a Feb. 14 call. "We're in solid MSAs with solid sponsors, and we've pulled back in certain MSAs, such as Washington, D.C., ... that got overheated in the CRE side."
As interest rates rise, "we're keeping an eye on [capitalization] rates," Woods added. "But rents are expected to rise in kind of in sympathy with that." Citizens Financial Group unit Citizens Bank NA is not concentrated in CRE loans.

CRE loan growth continues to wane after seeing outsized growth in 2015 and 2016. A year ago, growth rates for construction and land development, multifamily, and non-owner-occupied nonresidential real estate loans were in the double digits. In the fourth quarter, C&D was up by 8.1%, year over year, multifamily loan growth was up just 5.5%, and non-owner-occupied nonresidential real estate, which makes up about half of total CRE lending, was up by 6.2%.
One area of growth acceleration is loans made to finance commercial real estate, construction and land development activities that are not secured by real estate assets. These loans by U.S. banks and thrifts grew 15.9% in the fourth quarter of 2017 compared to a year ago. CRE loans not secured by real estate make up a smaller portion of banks' lending portfolios, but that portion is growing, making up 7.2% of U.S. banks' CRE loans as of Dec. 31, 2017.
California-based Hope Bancorp Inc. is seeing less demand overall for CRE loans, CEO Kevin Kim said in a Jan. 31 conference call. "The appreciation that has occurred in CRE assets has contributed to a lower level of inventory available in the market," he said. "Investors are also taking a more cautious stance in the current environment. As a result, the majority of our recent CRE loan production consist of refinancings."

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