Commercial Loans on the rise


As mentioned in previous columns, commercial building loans and their supporting activity are edging toward pre-recession levels. As of mid-year 2013, U.S. banks had issued just short of one trillion dollars in commercial real-estate loans, up almost 4% from a year earlier, according to official sources.

Stretching from office buildings to shopping centers, warehouses and apartment buildings, such lending to developers and property owners is on an accelerated rebound because of impressively rising real estate values and greatly improved credit quality. Also adding to this positive equation is the high esteem in which America’s real-estate property is held by foreign investors sitting on top of an all-time high accumulation of cash liquidity.

What differentiates the current surge in the commercial sector from the “bubbles” that preceded the recession in the late 1990s and the short period after the century’s turn, is that it is based on actual demand and solid credit, rather than speculation.

What makes this turn of events particularly impressive is that commercial real-estate is becoming a significant driver of loan growth. After a 25% plunge in loans-generated growth as late as 2011, the current rebound is unexpected in the breadth of its scope and the variety of commercial real estate covered.

Although the switch from single-family homes to a massive surge of rental apartment buildings provided the initial post-recession liftoff, the current commercial growth is engendered by the genesis of office buildings, retail complexes and industrial properties, as well as the expansion of leased and monthly rented residential apartment high-rises in major cities.

This switch from long-term home owner-ship to a more flexible method of shelter for the bulk of America’s fast-growing population appears to be a long-term shift. This is based on the urgency of nationwide employment mobility and a widespread belief that homeowning is no longer considered the sure-fire asset it had been for many decades preceding the traumatic financial breakdown of 2008-2011. “Flipping” with almost automatic price increase on sale appears to belong to the past.

Just as important has been the reaction of both major national and regional banks, which are more secure in extending credit to developers and business owners. This is especially graphic during the current regulation transition, when both the Federal Reserve and government agencies have tightened their grip over the greater flexibility and government policies, which facilitated and encouraged much easier lending practices in the past.

At a time when America continues to be faced with domestic dysfunction and foreign policy challenges, this unexpected awakening of the almost moribund construction arena is a most hopeful sign for a great national rebound in the foreseeable future.


Solar projects lead renewables

Despite the controversies surrounding such government-subsidized bankruptcies as Solyndra, the influx of cut-rate Chinese solar panels and the concerns of growing competition from utilities, solar is approaching its greatest power generation capability ever in the United States.

Although the proportionate results are concentrated heavily in California, North Carolina and Massachusetts, solar usage expansion is assured of substantial growth in most of the country for the following reasons:

  • Declining solar PV panel prices, favorable legislation such as renewable portfolio standards and fiscal investment tax credits continue to drive solar renewable development by utilities and merchant generators. Also, the retirement of older fossil fuel and nuclear units creates demand for a new generation of solar power that greatly enhances this type of renewable energy.
  • State legislation has been critical for utility-scale solar growth. California, which has, by far, the most planned solar capacity, recently passed two bills encouraging renewables in general, but particularly solar development. Senate Bill 43 allows ratepayers to purchase renewable generation from 600 milliwatts of shared installation. Assembly Bill 327 gives utility regulators the ability to raise the “rate” requirements as high as they choose. This removes the aggregate capacity and individual project size limits on net metering.

With the second half of 2013 indicating substantially new records for residential, commercial and industrial installations now in use, the spread to most of the country is inevitable in the years ahead. Although utilities’ solar mandate usage and federal/state tax credits will continue to provide cost-efficiency usage in ever-larger quantities throughout the United States, the effectiveness of technological advances also will play a part in the increasing utilization of solar energy going forward.

With the rather dour climate of Germany setting the example, much of the expected breakthroughs enhancing future utilization of solar energy are bound to add additional opportunities for enhancement of America’s total future energy capacity. Together with the ever-brighter future of global natural gas usage for transportation and the electric car phenomenon of Tesla Motors, the United States is well on its way to becoming the world’s energy megacenter, an objective not even dreamed of a short 13 years ago.


Homeowners pare down debt

One of the surprising aspects of the better-than-expected 2.5% annualized second-quarter increase in the U.S. gross domestic product of goods and services is the record amount of total household net worth ever comprised by America’s vast population of more than 300 million. This amounted to a gross close to $90 trillion, with $74.8 trillion after debt reduction. This statistic is primarily made up of real estate, stocks and bonds, cash and savings, pensions, and a variety of miscellaneous holdings and proprietary investments.

Home mortgages, consumer credit and other private debt made up a total of a near $14 trillion deficit. The major boost in the wake of the global financial recession came from two major factors — the remarkable comeback of the overall U.S. stock market and the seventh quarterly increase in home values. The combination of these two factors alone enhanced U.S. household wealth by $1.3 trillion in the second quarter of this year, according to Federal Reserve figures.

Adjusting for U.S. inflation, household net worth is about 4% below its peak, which means that America’s households have recovered roughly 85% of what they lost during the Great Recession.

To the credit of the American public, they have bounced back smartly, both by paring debt and mortgages, as well as re-engaging the consumption sector. This is a main reason that the final second quarter GDP numbers beat the original 2% projected growth factor by one-half a percentage point. While surprisingly springing back to near-record automotive purchases and better-than-expected discretionary buying, the U.S. consumer also exhibited prudence by paring down debt, which is reflected by total consumer debt payments reaching a 30-year low.

While consumer savings as well as increased consumption have done the heavy lifting for the nation’s gross domestic product increase during the past two quarters, the Federal Reserve Board’s quantitative easing also has played a major role in making both increasing housing and stock purchases available at all-time-low interest rates.

However, as a new fiscal year gets underway, it’s almost a sure bet that the expected tapering of the Fed’s monthly $85 billion worth of U.S. Treasury bonds and bank-held mortgage derivatives will be getting underway before the end of 2013. With unemployment and increasing part-time work weighing on a sizable segment of America’s 140 million worker potential, the economy will not be able to get off the ground enough to give a real lift provided by a growth-inspired energy sector that may reach the highest levels of oil and natural gas production this nation has ever seen.