Credit Union Commercial Real Estate Lending Grows
Credit union commercial real estate lending is growing steadily. Callahan & Assocs., Washington, D.C., reported that credit union CRE lending grew nearly 17 percent between second-quarter 2015 and second-quarter 2016.
The second quarter represented the fourth consecutive quarter with accelerating year-over-year credit union CRE lending growth, Callahan said. Commercial real estate loans now make up 5.8 percent of credit union lending.
MBA NewsLink recently posed questions to Extensia Financial CEO Pam Easley. Extensia Financial, Northridge, Calif., is a credit union service organization that partners with credit unions to diversify their lending portfolios and connect them with their communities through commercial real estate financing programs. Extensia services $750 million in commercial real estate and small business loans.
MBA NEWSLINK: Talk about credit union service organizations and about Extensia Financial.
PAM EASLEY, EXTENSIA FINANCIAL: When one or several credit unions see a need, rather than develop [a financial tool] internally, it’s often more cost-effective for credit unions to collaborate and cooperate by building a service capability [called a CUSO].
Our CUSO, Extensia Financial, focuses on commercial real estate. We basically originate opportunities for credit unions to evaluate to determine whether they would like to fund the loan. They can also bring their own business members who might be buying a building or similar CRE purpose and we will organize the financing for those loans.
We also service CRE loans on behalf of credit unions and do risk-management reporting for them as well.
NEWSLINK: What Trends Do You See Affecting the Sector?
EASLEY: That depends on what side of the commercial real estate equation you’re on. The insurance side or the community mortgage bankers’ side can be different than a credit union’s view. Credit unions tend to be very well positioned with commercial real estate right now. They are using commercial real estate lending as a tool to diversify their portfolios. Many credit unions still have a high concentration of residential loans and commercial real estate spreads risk better. So the largest trend we’re seeing is what I would call an “awakening” among credit unions to the advantages of having commercial real estate as a diversification tool.
NEWSLINK: Can CRE Help CUs increase Yield?
EASLEY: It’s important to keep in mind that we’ve been in a very low interest rate environment for a very long time. Credit unions are limited in what they can invest their cash in on the treasury side. One advantage to commercial real estate participation [in CUSOs] is that it allows credit unions to take a position in a loan without taking an entire loan onto its books. The credit union benefits from higher yield as a result.
NEWSLINK: Credit Union Times reported that the National Credit Union Administration has proposed changes that would eliminate aggregate limits and cut minimum borrower equity on construction and development lending. How might this affect credit unions?
EASLEY: We see that as a positive change. Basically, NCUA has given credit unions a chance to create CRE programs for themselves. But underlying that, two things need to happen: credit unions must manage their own risk and they must have accountability for the decisions they make. This puts the decision on the credit union.
Basically, the credit union must understand the loan they’re looking at. And then they have to have the ability to manage the loan after it’s funded from a risk-management perspective. Credit unions already do this very well with residential and consumer loans, so these regulations are just added to what credit unions tend to do extremely well.
