With tightened guidelines, increased equity requirements and reduced demand for loans, the commercial lending landscape remains bleak in Shelby County and throughout the nation.

But the most recent local numbers reveal a faint glimmer of hope that the tide might turn. Someday, at least.

The county saw 35 commercial mortgages in February, up 16.7 percent from 30 in February 2008 and up 40 percent from 25 in January 2009, according to the most recent data from real estate information company Chandler Reports, www.chandlerreports.com. (For this article, mortgage counts include only mortgages taken at time of sale and not refinancings.)

Commercial mortgages last month averaged $530,481, a 25.7 percent increase over $421,954 from February 2008 but a 12.8 percent decrease from $608,158 in January 2009. Also, the total mortgage amount last month was $18.6 million, up 46.7 percent from $12.7 million in February 2008 and up 22.1 percent from $15.2 million in January 2009.

Commercial mortgage lenders were encouraged by the slight uptick in activity, yet not all of them believe the market has rounded the corner as businesses continue to hunker down in light of the economic slowdown.

“Lending is very flat,” said Tom Portis, Memphis division president of Tupelo, Miss.-based BancorpSouth Bank. “Most companies, I think, are kind of sitting on the sidelines waiting to see, and nobody is really expanding or putting a whole lot of money back into the economy right at the present for anything. It’s sort of a retraction and waiting to see what the economy is going to do. People don’t know, and I think that’s the biggest thing.”

Slumping

The year-to-date numbers underscore that belief. Through the end of February, just 60 commercial mortgages were made in Shelby County, down 29.4 percent from 85 the first two months of 2008 and down 50.4 percent from 121 the first two months of 2007.

Also, the average commercial mortgage amount for 2009 is $562,847, a 54 percent decline from $1.2 million in the first two months of 2008 and a staggering 94 percent decrease from $9.4 million in the first two months of 2007.

The total loan amount in 2009 shows an even deeper slump. For the first two months of the year, only $33.8 million in commercial loan activity has been tallied in Shelby County. That marks a 67.6 percent dropoff from $104.1 million in 2008 and a 97 percent dropoff from $1.14 billion in 2007.

The reason for the plummeting numbers over the past two years has resulted from a combination of factors, noted Rick Wood, senior vice president for Financial Federal Savings Bank.

“On the acquisition side, we are still seeing a huge disconnect between buyers and sellers, both in the Memphis market and nationally,” Wood said. “So our acquisition loan opportunities have been minimal because the financing that’s available from institutional sources is 60 to 65 percent of cost. So the equity requirement of 35 to 40 percent certainly gives potential buyers some reason to analyze the situation to see what their cash on cash return might be.”

Wood added that even refinancings are suffering in light of similar loan-to-value ratios being required by lenders.

“The new underwriting and lower loan-to-value criteria probably don’t make it worthwhile for a refinance for many people,” he said. “It’s tough putting the parties together.”

Those scenarios apply to retail, office and industrial sectors, Wood added. With regard to multifamily, 80 percent loan-to-value ratios are still available through Freddie Mac and Fannie Mae, making that sector one of the more active in the commercial realm.

‘Bearing down’

For February, the top commercial lender – excluding seller-financed loans, which totaled six during the month – was SunTrust Bank. The bank had just one mortgage for $2 million, a sign that overall activity was slow, to say the least.

SunTrust was followed by First Tennessee Bank NA, with two loans averaging $569,375 and Sycamore Bank in Southaven with two loans averaging $424,000.

Despite the dearth of lending in Shelby County, loans are being made here, albeit at a slower clip. Portis pointed out that the key word in lending has been, and remains, “qualified.” In other words, if a borrower has a good project and has solid credit backing from the standpoint of debt service, then that applicant should be approved, he noted.

“Banks are willing to lend,” Portis said. “It’s just that underwriting may have gotten a little tighter from the standpoint of what they (lenders) are looking at. At the same time, credit is available to that qualified borrower.”

Andrew Gibbs, senior vice president at Memphis-based Mercer Capital, noted that the problem facing commercial lending falls on the demand and supply sides. Many lenders have been weakened by credit issues and the inability to raise capital, while many borrowers have been weakened by the overall economy.

“You don’t see many people undertaking any expansion activity now and they’re not really doing acquisitions to generate the need for financing,” Gibbs said. “Businesses seem to be trying to bear down and reduce debt to the extent they can.”

Chandler Reports is a division of The Daily News Publishing Co.