These Two Industries Lead the Commercial Lending Market

Multifamily and industrial loan seekers are more likely to receive a loan than other type of commercial project thanks to California’s high demand for these spaces. There is a housing shortage and an e-commerce boom in southern California so strong that demand is increasing even while interest rates are going up.

Lenders are anxious to get behind the growing e-commerce and multifamily sectors because their trajectories appear to only be going up. Industrial and e-commerce real estate have become one and the same. As a port city, L.A. is one area where both industrial and multifamily is exploding in demand.

An Uptick in Lenders Backing Multifamily in 2018

Despite the Mortgage Bankers Association reporting that there will be an uptick in lending in multifamily this year, overall, experts predict multifamily lending and construction to slow over the year. Commercial lending started the year well with multifamily leading the uptick in lending by volume over the last two years; increasing by 1% between the first quarter of 2018 and the first quarter in 2017.

Loan originations for multifamily increased by almost 20% over the same period, better than any other commercial real estate sector. The only other sector that saw an increase in lending instead of a decrease was industrial which saw an increase of nearly 15% year-over-year.

While the number of transactions is slowing in multifamily and new construction is also slowing, investors and developers are shifting their focus to secondary and tertiary markets for new multifamily projects.

Lenders Cite E-commerce for Boom in Industrial Market

Second to multifamily is the boom being seen around the country, particularly in coastal cities, in the industrial market. Experts say that e-commerce is fueling surges in a broadening of the types of industrial assets needed and sought out by investors and developers.

In places like L.A. – home to “the largest combination of ports” – being on the water or having an easily adaptable multimodal logistical location, the demand is the highest. Shipping and delivery demands from e-commerce are making it necessary to diversify industrial assets in order to facilitate local delivery versus near city deliveries versus regional distribution and fulfillment.

Lenders are racing to back these investments based on the idea that e-commerce will only continue to broaden and deepen and that places like L.A. will always be ideal for moving goods around the country and abroad. Banks aren’t even really lending in commercial real estate with a decrease in overall loan originations of nearly 25% last year.

However when it comes to multifamily and industrial, lenders are putting more money behind these commercial types. Like multifamily, industrial assets in secondary and tertiary markets are becoming increasingly valuable in overall e-commerce supply chains.

Coupled with landlords and building owners finding new uses for their assets and redeveloping large properties into mixed-use spaces, lenders see many opportunities in backing these two sectors. In fact, as the data shows, those in these two sectors are more likely to get approved for a commercial loan than those in retail, healthcare, and office.