Lenders conclude that world is not ending.

According to our day-to-day commercial mortgage brokerage and mortgage consulting practice, we have noticed that banks and other lending institutions have concluded that the world is not ending, and therefore once again are entertaining portfolio expansion in the area of real estate.

The combination of lower vacancy rates and increasing signs of economic recovery in most regions has created conditions over the past three months that are much more conducive to lending in 1994. As most institutions have weeded out the bulk of their non-performing assets, they are now increasingly positioned toward more active lending practices.

This return to commercial mortgage lending, however, is characterized by an emphasis on cash flow, shorter terms and more stringent requirements regarding replacement, work-letter and leasing commission reserves. While commercial banks appear to be willing to plunge back into real estate under the aforementioned standards, insurance companies in general, and particularly those which used to lend on assets and hold direct equity positions, are still shying away from the market, especially in regard of office buildings. Tougher risk-based capital rules for the insurance industry have caused many of them to leave the equity market entirely, and to confine their real estate involvement towards the acquisition of securitized mortgage packages rated by a nationally accepted agency.

Construction lending is definitely on the rebound. Particularly for situations where risk is minimal, smaller, community-oriented commercial banks are beginning to fund affordable tract housing, even if some small loan amount remains outstanding after repayment of the first tranche. National credit companies are entertaining construction requests to re-position existing shopping centers when bonafide leases are in place for the incremental space. As is to be expected, the profile developer is a survivor of the Eighties, and possessed of a track record, liquidity and street smarts.

If one is to believe in the resurrection of the dead, undoubtedly it is happening before our eyes. We bear witness to the re-entry into the market of the thrifts, many of who underwent charter modification in order to bolster their capital. They now brim with funds available for mortgages, and are taking their first tentative steps back into the arena. We do not anticipate a return to the fast and loose style of lending that nearly buried them a few short years ago, but the thrifts' traditional interest in permanents on multi-family housing, and renewed appetite for other commercial structures located near their branches, bodes well for building owners.

The vigor with which the commercial mortgage market is improving should be exploited, for we all know that it won't take too much bad news to bring back the skittishness of the past few years. Time waits for no one, not even a real estate operator with a very long view. To paraphrase a common retailing saying, it would be most prudent to act now (with one's financing plans), because this is (very clearly) "a limited time offer."