U.S. banks are seeing some of the lowest loss rates of the past six years on commercial real estate and construction loans,boosting their case for increased lending activity in the sector.
Data from Sageworks, a financial information company, show that net charge-offs for commercial real estate loans (non-farm, non-residential) were 0.16% of average loan balances in the most recent quarter. This is down from 0.9% at the end of 2009 and 13 basis points below June 2013 quarter rates. Loss rates for construction and land development loans have fallen from 3.58% of average loan balances in December 2009 to 0.24% in the most recent quarter.
Sageworks analyst Regan Camp said that in addition to falling loss rates, the improving economy and increased competition for attractive borrowers in the commercial and industrial lending space may also contribute to a sense of confidence in lending activity in this sector.
“The good news is that as more banks move back into real estate lending, it will present more options for borrowers,” Camp said. Increased competition for borrowers might allow for more appealing terms or incentives, he noted.
Indeed, the Federal Reserve’s recent Senior Loan Officer Opinion Survey found banks on balance have been easing standards on most types of commercial real estate. And the FDIC’s latest quarterly report showed banks’
commercial real estate lending has increased to levels unseen since 2007.
For several years, Camp said, banks moved away from commercial real estate lending because of losses tied to real estate loans before the Great Recession. Demand, too, had been weak as contractors and investors either collapsed or
backed off dramatically in the wake of real estate market woes.
But the Mortgage Bankers Association noted recently that commercial bank portfolio loans for commercial and multifamily mortgage loans increased 19%
By Stephen Blank,
Posted on urbanland.uli.org
A Bigger Role For Banks In Commercial Real Estate Lending
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