A recent Federal Reserve survey indicates that while demand for business loans increased, commercial real estate (CRE) lending encountered tighter credit conditions in late 2024.

Lending Standards Tighten

The Federal Reserve’s latest Senior Loan Officer Opinion Survey (SLOOS) revealed that a modest net share of banks tightened credit standards for construction, land development, and nonfarm nonresidential loans during Q4 2024. However, lending criteria for multifamily properties remained largely unchanged.

Shifts in Loan Demand

Demand for construction and land development loans softened slightly, while interest in nonfarm nonresidential and multifamily financing varied. Larger banks reported stronger demand for multifamily loans, whereas smaller institutions experienced declining demand across all CRE loan categories.

Large vs. Small Banks: A Breakdown

Large Banks:

• 14.3% tightened standards for construction and land development loans, while 81% made no changes.
• 9.5% implemented stricter terms for nonfarm nonresidential and multifamily loans.
• Demand for multifamily and nonresidential loans saw slight growth, while construction loan demand remained stable.

Smaller Banks:

• 14.3% reported weaker demand for construction and land development financing.
• 19.5% saw declining interest in multifamily loans.
• 4.8% significantly tightened standards for construction lending.

Bottom Line

The tightening of credit standards reflects a more cautious lending approach, particularly for construction and land development. However, demand remains strong in certain sectors, particularly among larger banks, suggesting that financing is still available—albeit with more stringent terms.