Drawing on his more than 30 years of financial services experience, CUBG President/CEO Larry Middleman has seen the cycles, the recessions and how the “go-go days” of lending can impact loan decisions banks and credit unions make. In the end, it is about sticking to “good fundamentals and sound lending principles.”

“We would hear things like 'we're looking too conservative' during the go-go years,” Middleman said of CUBG's portfolio management strategies. “Then everything went nuts in 2006, 2007 and 2008.”

Of CUBG's more than 360 credit union clients, just 11 had charge-offs on their books as of March 30, 2011, according to data from the CUSO. Of the 160 credit unions that CUBG regularly underwrites, Middleman said 116 had no delinquencies.

The CUSO's business loan delinquency as a percentage of outstanding member business loans outstanding was 2% compared to 5.50% for all banks, 6.06% for all banks with less than $1 billion in assets and 5.85% for all credit unions as of March 30 using FDIC data and 5300 Call Reports.

The pattern is similar with business loan charge-offs as a percent of outstanding MBLs. According CUBG, that figure was 0.14% as of March compared to 1.51% for all banks, 1.02% for banks under $1 billion in assets and 1.02% for all credit unions.

Still, credit unions may benefit even more in the business lending space by tackling potentially trouble loan spots early on, Middleman encouraged.

“In general, banks know where the problem loans are and will deal with them,” Middleman said during a sit-down interview with Credit Union Times. “Credit unions are too fast to extend and pretend,” he suggested, carefully choosing his words.

Middleman said while banks were making more construction loans in 2008, their charge-offs had leveled off as of March 2011. Credit unions were not doing nearly as many construction loans as banks, their charge-offs tended to be high–but not as high as banks–during the same time period.

“Credit unions tend to want to believe that the market will come back. They're slow to call it what it is,” Middleman said referring to loans that may be showing signs of trouble.

Still, loan losses sustained by credit unions do not compare to what the banks have experienced over the past few years. Middleman said MBLs, particularly among those credit unions that have more than $5 million in business loans on the books, have grown significantly since 2008.

There are a number of scenarios at play that favor how financial institutions will lend over the next few years. John Chang, vice president of research services at Marcus & Millichap Real Estate Investment Services, offered a sweeping outlook on commercial real estate and sectors to watch. The recent debt ceiling gridlock that has since been settled continues to be a factor.

“A lot of the markets are trying to figure out how this is going to play out,” Chang told conference attendees during his keynote talk. “It's going to affect the commodity markets and the volatility index.”

The economy has transitioned since the second quarter of 2009 from a heavy reliance on government initiatives and inventory restocking to the release of “real pent up demand by companies and consumers” expected by the fourth quarter of 2012, Chang said. Unlike most recession recoveries, the latest ones have yet to experience a sustained lift in the housing sector.

“Tax credits failed to revive housing so we're still behind,” Chang said. “The good news is we're hitting the bottom but we still have a ways to go.”

One bright spot is consumption is happening, Chang noted. Capital spending by corporates will be key to a sustainable recovery, he added. Small businesses, however, are lagging due to a lack of capital access and spotty retail sales.

Depending on where a credit union is in the country, vacancies, considered to be one telltale sign of recovery, are a mixed bag. For instance, apartment, office, industrial and retail vacancies are most prevalent in cities such as Las Vegas, Detroit and the Dallas-Fort Worth region, according to Chang.

The bottom five areas for retail vacancies were Dallas, Indianapolis, Phoenix, Cleveland and Cincinnati as of the second quarter. The top five were San Francisco, San Diego, Washington, Los Angeles and Boston.

Chang suggested credit unions continue to look to the metropolitan markets for opportunities but also consider submarkets within those areas. Despite the hits in some parts of the countries, “commercial real estate is emerging from the recession. We're seeing it across all property types.”

Another segment that could significantly impact CRE growth are the “echo boomers,” those 20 to 34-year olds who are looking for their own places after having to move back in with parents, Chang offered. There are estimated 80 million of them in the United States. Over the last year, the “lion's share” or 75% of employment was secured by this group, he added.

For the CRE sector, that could potentially be a surge of consumers in the 20 to 34-year old range looking for apartments and other places to rent and buy. Credit unions may do well to pay attention since persons in their late 30s, 40s and 50s haven't been finding jobs at the pace as echo boomers, Chang offered.

Apartment rents are at about what they were before the recession, he noted. Overall, apartments, office, retail, industrial spaces are moving in right direction with industrial being one of the slowest to recover. Meanwhile, office space has the most distressed properties to the tune of $43 billion. Long term, looking out more than 10 years, Change said CRE appreciation rates look strong.

“Businesses have close to $2 trillion sitting on the sidelines. They're very liquid and it's because they're uncertain,” Chang said. “But the potential is there as the debt ceiling gets behind us.”