Unimpeded by Legacy Distress, Healthier Banks Making CRE Loans
Print
Email
Share
Reprints
News Tip?
Get Alerts
Chief Economist Archive
More Related Topics
- W.P. Carey Lays Out REIT Plans
- UPDATEStamford Loan Deal Estimated At $250 PSF
- EXCLUSIVEBeech Street Provides $28M to Refinance an L.A. Portfolio
- Mack-Cali & Winthrop Acquire $40M Mezz on Stamford Portfolio
- Greece Given $173B Conditional Bailout
Most Recent Blog Posts
- Counter CultureWill a J.C. Penney Turnaround Work?
- Ross Rant2012 Remains Uncertain
- Counter CultureWhy Is Sears' Stock Rising?
- Practical Counsel2012 CRE Markets: Up, Down or Sideways?
- Counter CultureHhgregg Vs. Best Buy
Related Videos
- ON LOCATION WITH PRUDENTIAL'S WARRENMultifamily Gets Singled Out Exclusive Video
- ON LOCATION WITH APARTMENT BANK'S CUNNINGHAMMultifamily is the Talk of the Town Exclusive Video
- ON LOCATION WITH JLL'S COLLINSTime to Lend in Europe Exclusive Video
- EXCLUSIVE: Archetype's 2012 CMBS Origination Goal is $1.25B, Says Auerbach (MBA CREF Video)
- ON LOCATION WITH PARTNER'S DERHAKEPeople Are Spending Money Exclusive Video
- It’s A Great Time to be a Borrower and a Seller (MBA CREF Video)
Upcoming Events
Related Webinars
As reported in our most recent Bank Default and Lending Report, the combined default rate on banks' commercial and multifamily mortgage loans fell to 3.75 percent in the third quarter of 2011. The new accounting reflects a 19-basis point drop from the second quarter's 3.94 percent default rate and a 67 basis point decline from the cyclical peak of 4.42 percent a year earlier.
Most Banks Still Drawing Down Exposure to CRE
In spite of the improvement in legacy loan performance, many banks are still drawing down their exposures to the property sector. The outstanding balance of banks' multifamily and commercial real estate loans fell by $3.1 billion during the third quarter, reflecting a small net increase in multifamily loans and a larger offsetting decline in commercial loans.
Banks' aggregate lending activities are being curtailed by a combination of factors. Among them: tight credit standards in secondary and tertiary markets and for non-core assets; increasing competition from non-bank lenders in primary markets and for core assets; in some areas, relatively weak loan demand apart from the market for refinancing; and, undoubtedly, a combinatin of internal and regulatory pressures. Overall, banks have reduced their exposure to multifamily and commercial real estate by $35.0 billion since the market peak, a 2.7 percent decline following several years of rapid expansion.
Banks With Healthier Legacy Portfolios More Likely to Lend Anew
The pattern revealed in the bank-by-bank analysis is intuitive. Nonetheless, it is also instructive for our assessment about of the headwinds facing banks that remain encumbered by large pools of non-performing loans. As the first chart shows, the distribution of changes in banks' CRE loans over the last year is characterized by a long right-hand side tail. This positive skewness in the distribution indicates that a relatively small number of banks are leading this foundational class of lenders back to the CRE financing market. As of yet, reengagement is not widespread.
Equally important, the analysis shows a statistically signficiant relationship between the health of banks' legacy loan portfolios and their current CRE lending activities. The estimated coefficient is economically signficant, as well.
In the simple linear relationshiop illustrated below, banks with lower default rates in Q3'10 were more likely to have grown their balance sheets over the ensuing year. A number of behavioral relationships can be posited for this finding, not least amongst them a more constructive supervisory relationship and a more limited preocccupation with the mangagement of distress.
(To search across all ALM blogs, go to www.Lexis.com.)
GLOBEST.COM B2B FEATURED SERVICE PROVIDERSAdd your company
 |
 |
 |
 |
| Apartment Bank | Coldwell Banker Commercial | Green Courte Partners | Lone Oak Fund |
Comments+ Add your comment
Be the first to comment on this post using the section below.
Post your comment
You must be registered to post a comment. Click here to register.
Log in
If you have already registered to GlobeSt.com, please use the form below to login. When completed you will immeditely be directed to post a comment.
Industry Blogs
News and views from CoreNet Global Summits in the Americas, EMEA and Asia-Pacific, brought to you by Jones Lang LaSalle attendees and speakers at the conferences. more
The Commercial Tenant Resource is focused on commercial
space users across the United States. Our goal is to highlight important
issues in commercial real estate to those responsible for their own
company's portfolio. We will arm you with leverage and ideas from the
tenant's perspective. more
Submitted by: Ken Ashley
TheSquareFoot is an online platform that helps prospective tenants find the perfect commercial real estate space to lease. The firm’s blog offers insight on this and other commercial real estate topics. more
Creating wealth in commercial real estate requires an exceptional understanding of both micro and macro determinants of real estate values. This blog titled "Dirt Experience meets Wall Street" provides fresh, intelligent, and sometimes cynical insights on buying buildings in today's market. more
Submitted by: Dan Pryor
Engaging stories, sometimes rants, about financial matters
including real estate, banking, regulation, and trues stories (with names
changed to protect the gulity). Author is a cross between Dr. Phil and Dr.
House. more
Submitted by: Bob Greenfest
John Kobierowski, a twenty year veteran of the multifamily business explores the in and outs of the apartment market in Phoenix. Follow me as we explore the market, the myths, current events and the backstories of the business. more
Registered members now have the ability to post links to their industry-related blog — a valuable marketing opportunity not available on other sites. Start the conversation today. more
