The recovery in large and mid-tier banks' commercial property balance sheets is accelerating. Chandan's independent analysis of second quarter call report data shows the default rate on banks' income-producing real estate mortgages fell to 3.11 percent, the lowest level since mid-year 2009. The 34 basis point drop from the previous quarter's 3.45 percent default rate was the largest one-quarter improvement in legacy loan performance since the peak of the crisis.

Bolstered by improving fundamentals and an abundance of low-cost financing, the apartment default rate dropped to 2.03 percent, less than half its peak level. The default rate on commercial property loans fell to 3.34 percent, reflecting a relatively weaker recovery in cash flow and value trends in the office, retail, and industrial sectors.

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Q2 2012 Bank Default and Lending Review
Client Webinar • September 2012

Selected Report Highlights

Widespread Improvements

Lower default rates were reported by a clear majority of institutions. Across banks with at least $10 million in commercial property and apartment loans and a non-zero default rate in the first quarter, more than 60 percent reported lower default rates in the second quarter.

Falling CRE Distress on Bank Balance Sheets

Banks' non-performing commercial and multifamily balances fell to $48.0 billion in the second quarter, down 36 percent from the peak level of distress. Multifamily distress has fallen by half from its high-water mark.

Apartment Lending Rises at Stronger Banks

Banks’ net lending to commercial property and apartment borrowers increased by almost $5.0 billion in Q2 2012. Three-quarters of net new lending was in the apartment sector.

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