Recently, a colleague located on the East Coast made the observation that commercial lending may be “drying up.” He asked for our view on whether this is true and how lenders are approaching 2016.

The short answer is that debit and equity (capital) markets are now affected by global and national economic activity. Real estate markets are local. Portland may be having a “goldilocks”moment in which good underlying real estate fundamentals are bolstered by low rates that are held down by poor economic realities elsewhere. Our reality in Portland may not be the same one that folks are experiencing in other markets.

As a debt and equity mortgage banking firm in Portland, Melvin Mark Capital Group arranges joint venture equity, construction debt, and long-term permanent financing for all manner of income-producing properties. Our capital sources include banks, pension funds, agencies (Fannie Mae and Freddie Mac), and life insurance companies. The majority of these lenders are not located in the Portland market and provide capital across the entire country.

It is good to remember that our lenders are essentially investors seeking yield. They have cash that needs to be deployed. Take life companies for example: the alternative to mortgages are high-quality, investment-rated bonds. The yields on these bonds have been very low for several years, which have placed more pressure on the mortgage departments to deploy capital into good quality loan opportunities. We have seen this influx of money into real estate for several years now.

For 2016, many lenders have equal or greater allocations. In fact, several are attempting to figure out ways to get more yield. This typically requires taking on more risk and can lead to deterioration in underwriting parameters. As a cautionary note, we generally tend to experience this toward the latter half of a real estate cycle. We are now 6.5 years into recovery, and the average economic expansion lasts 5 to 5.5 years.

So, we anticipate a continuing heavy flow of capital into real estate with some caution.

Here is where Portland comes into play. Portland continues to have some of the strongest real estate fundamentals across the country with low vacancy rates and high demand across all asset types. Lenders view Portland as a very favorable place to make loans. We’ve got a good story to tell, a strong urban growth boundary, young tech talent, and an incredible quality of life. We began to experience, to larger extent, institutional investment capital (debt & equity) in Portland once the returns in San Francisco and Seattle began to get very thin. This has only snowballed and is not expected to slow anytime soon.

More aggressive lenders such as banks may suffer another hangover and retreat from the market;  but our most reliable capital sources were able to remain active throughout the recent cycle. In fact, some would say they made their best loans during the trough of the recession, and they are well-positioned to continue to do so in the future.

In our view, commercial lending doesn’t appear to be drying up. This is a dynamic industry with lenders and their programs changing every day. It is important now more than ever to use an intermediary to explore all financing options in order to find the best solution.