Between 2011 and 2017, the Philadelphia area experienced a commercial real estate (CRE) boom. New construction, rehabbing, and sales of existing properties were all at high levels. Where did the funding for all of these projects come from? Throughout the nation, banks are by far the largest CRE lenders, and small banks capture a large share of this lending. Relative to large banks, small banks excel in local knowledge and local relationships, giving them a comparative advantage in making these loans. However, using data from Real Capital Analytics, I found that local banks originate a surprisingly small share of CRE loans in the Philadelphia market. To find out why, I examined the types of banks making these loans.

This article appeared in the Third Quarter 2020 edition of Economic Insights. Download and read the full issue.