Heading Towards Default, an Update on the Commercial Real Estate Outlook...
SELECTED FINDINGS FROM THE Q4 2012 BANK CRE DEFAULT AND LENDING REPORT
AND QUARTERLY BANK LEAGUE TABLES
LARGEST INCREASE IN BANK LENDING TO CRE SINCE Q4 2008
Bank lending on multifamily and commercial property (collectively, CRE) is ramping up as balance sheet conditions improve. The volume of CRE loans held by banks jumped more than $20 billion in Q4 2012, the largest one-quarter increase in four years. For the first time since the onset of recovery, a majority of banks with measurable exposure to the sector increased their net lending activities.
Supported by improving fundamentals and an abundance of low-cost financing, the apartment default rate dropped to 1.6 percent, down from a peak of 4.7 percent. The default rate on commercial property loans fell to 2.9 percent. The construction loan default rate fell to 8.3 percent, less than half its peak level.
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Q4 2012 Bank Default and Lending Review
Selected Report Highlights
Lower default rates are not limited to a small number of institutions operating in gateway markets. Across banks with at least $10 million in multifamily loans and a non-zero default rate in Q3 2012, 67 percent reported a lower multifamily default rate in Q4 2012, up from 60 percent in Q1 2012.
Highly Concentrated Distress
Distressed loans are concentrated on the balance sheets of a relatively small number of institutions. Just ten banks account for almost one-third of all multifamily real estate owned (REO). The ten banks holding the largest pools of commercial REO account for 19 percent of the commercial total.
Banks With Lower Default Rates Drive New Lending
Banks with lower default rates on legacy CRE loans were far more likely to increase their net lending. Among banks with measurable exposure to commercial properties that increased their net lending in Q4 2012, the mean default rate was 2.1 percent. Banks drawing down their lending reported a mean default rate of 3.6 percent.
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