Heading Towards Default, an Update on the Commercial Real Estate Outlook...
AUGUST 29 2012
SELECTED FINDINGS FROM THE Q2 2012 BANK CRE DEFAULT AND LENDING REPORT
AND QUARTERLY BANK LEAGUE TABLES
LENDING PICKS UP (SLOWLY) AS BANKS' LEGACY LOAN PERFORMANCE IMPROVES
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
Selected Report Highlights
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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