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Birmingham Business Journal Quotes John Pickering about Interest Rate Rise Coupled with Lending Slowdown

John Pickering, partner in the firm’s Birmingham office and Co-Chair of Balch’s Financial Services Practice, shared his insights in an interview with the Birmingham Business Journal regarding the impact of higher interest rates on loan demand.

In the interview published November 3, John discussed the current market dynamics, emphasizing that the rise in interest rates has led to decreased demand for loans, particularly within the commercial real estate sector. This challenging environment has made it increasingly difficult to demonstrate profitability for new projects, while existing projects are experiencing lower valuations due to greater funding costs.

One key issue John highlighted is the long-term nature of commercial rents, which are often locked into established rates for extended periods. This limitation restricts buildings from quickly increasing revenue, posing challenges for property owners and developers.

Bankers, John pointed out, find themselves in a quandary. They are eager to extend more loans but must prioritize the creation of high-quality loans with a strong likelihood of timely repayment. Simultaneously, the industry is witnessing a decrease in loan applications, largely attributed to the prevailing higher interest rates.

John expressed his expectation that the local economy may experience a slowdown. However, he noted that historically, Birmingham has proven to be less susceptible to economic downturns than other regions.

“Lenders that have a lot of commercial real estate loans on their books are going to be more conservative about making new loans because they are in a more economically precarious position than other lenders,” John was quoted as saying. 

He added that this doesn't necessarily imply impending failure for these institutions, but does indicate a strategic move to reserve more capital to handle potential issues arising from troubled loans. They will continue to provide loans, but at a reduced volume compared to institutions with fewer commercial real estate properties in their portfolios.

John’s more than 25 years of experience in real estate development and commercial lending positions him as a trusted advisor to various stakeholders in the industry. He represents a diverse client base including real estate developers, banks and other financial institutions, publicly and privately held commercial and real estate investment companies and individual investors.

John is a past Alabama Chapter President for the NAIOP Commercial Real Estate Development Organization, is a member of the American College of Mortgage Attorneys, and has served as an adjunct professor at The University of Alabama School of Law.