Just hours after Federal Reserve Chairman Ben Bernanke testified before Capitol Hill lawmakers saying the economic recovery continues to appear on track, albeit at a slow pace, and that there are still some forces threatening ongoing growth, a separate Fed report indicates good news in most industry segments. However, commercial real estate and business credit availability still are far from leading the charge of an economic resurgence.
The Fed's Beige Book study, which tracks economic conditions
typically over an approximate six-week period, found there was increased
economic activity in 11 or 12 districts through the first week of
April. However, loan volume and credit quality largely decreased amid
very mixed conditions in the banking/finance sector. Meanwhile, Fed
contacts reported that commercial real estate activity remained slow in
most of the nation, though some reason for optimism emerged in the
Richmond and Dallas areas.
District 1 -- Boston
contacts reported commercial real estate fundamentals as "roughly
stable." Commercial property operators trying to obtain loans for
improvements, being demanded by renters with increasingly strong
bargaining positions, experienced problems in securing financing.
Concern over defaults continues to increase despite recent stability.
District 2 -- New York
loan demand reports were mixed in the greater New York City area.
Commercial real estate credit availability was the tightest of all
industry categories. Meanwhile, commercial real estate markets bounced
between steady and soft in recent weeks. Office vacancies continued to
rise and a developer in Buffalo called new development "increasingly
District 3 -- Philadelphia
quality held stable in recent months, and Fed contacts predicted gains
in business lending during the summer. Granted, such credit likely only
will be available to business borrowers "with a sound income stream."
Commercial real estate should remain weak in the district for the
foreseeable future because businesses simply aren't willing to expand at
District 4 -- Cleveland
for business loans weakened in March. Commercial real estate credit
especially received closer scrutiny. Credit quality of business
applicants was a mixed bag, though delinquency levels largely
stabilized. And, despite tight credit conditions, commercial construction began to show signs of a rebound in the district.
District 5 -- Richmond
commercial and industrial loan demand remained weak, some bankers
reported "modest" improvements in both areas. Perhaps surprisingly,
commercial real estate activity increased in recent weeks, more so than
any region in the nation. Meanwhile, businesses tied to the automotive
industry found more difficulties in obtaining financing.
District 6 -- Atlanta
word for the flow of business credit is District 6 is "subdued."
However, bankers noted there is ample credit availability, but very low
demand from small businesses. Commercial real estate remained flat, on
aggregate. Expectations for the sector are not optimistic for the rest
District 7 -- Chicago
availability improved in the district, but Fed contacts said most firms
are delaying projects that require borrowing money. It is expected that
many middle- and upper-market firms will seek more credit during the
second half of 2010. Meanwhile, the overhang of vacant facilities put a
damper on demand for new commercial real estate starts.
District 8 -- St. Louis
and industrial borrowing declined by nearly 5% from mid-February
through early-April. Widespread commercial property foreclosures are
expected in the near future. The region is the only of 12 Fed districts
that reported worsening across-the-board economic conditions for the
current Beige Book tracking period.
District 9 -- Minneapolis
portions of the district experienced weak commercial construction
conditions, and another dip in demand is expected. One positive area, at
least for hotel and medical development, was an uptick in projects in
Great Falls, MT. The finance industry reported little of note about the
District 10 -- Kansas City
noted demand for business loans fell. However, the outlook for loan
quality is essentially unchanged as concerns over credit quality
continue to abate. Commercial real estate remains well behind last
year's already low activity levels.
District 11 -- Dallas
demand in and around Texas is seen as soft, but stabilizing. More
commercial and industrial loans were in the pipeline than in previous
months. However, amid high above-normal vacancy rates, a full-on rebound
for commercial borrowing focused on new projects remains far off, said
District 12 -- San Francisco
borrowing was stable in most parts of the district and up in others.
Still, reports of increased commercial and industrial borrowing largely
are tied to replacements and rebuilds rather than new projects. Contacts
do not expect a spike in commercial real estate demand in the district
through mid-summer, at least.
Brian Shappell, NACM staff writer