CHARLOTTESVILLE, VA-It’s official. The commercial real estate lending market has returned to health, or at least is on the cusp of doing so, according to two separate reports, one by SNL Financial, the other by Chandan Economics. Both note that loan delinquencies are reaching post-crisis lows and that lending is increasing at a health clip.

SNL reports that U.S. commercial banks reported a 14-quarter low delinquency rate of 5.28% on commercial real estate loans as of the end of June, and that the ratio of bad CRE loans has more than halved from the peak of 10.76% nine quarters ago. A number of banks, many based in California, have a clean bill of health now in terms of faulty CRE loans. In California, for example, three of the five banks studied had zero delinquent loans. One of these was Santa Barbara, Calif.-based Montecito Bank & Trust and its CRE loan sector accounted for 40% of its portfolio. Based on SNL’s analysis of median CRE delinquency rates Delaware, Iowa, Kansas, Massachusetts, Nebraska and South Dakota are on top of the list with “impeccable asset quality,” it said.

Chandan echoes these findings noting Q2 saw “the largest one-quarter drop in the bank CRE and multifamily default rate so far into the recovery.” It found that the default rate across commercial real estate and apartment loans held by banks fell to 3.11% in Q2--the lowest level in three years. In addition, Chandan said, lower default rates are widespread among banks with at least $10 million in apartment and commercial property loans. Smaller regional and community banks, however, especially those in smaller markets, are lagging their larger peers’ improving loan performance trends, the report also noted.

Lending activity is also picking up, Chandan reported. Banks’ net lending to commercial property and apartment borrowers increased by almost $5 billion in Q2--almost three-quarters of which was in the apartment sector. Also, interest rates on apartment loans fell to their lowest levels on record in the second quarter. SNL also took a look at lending increases, pointing to New York-based Safra National Bank of New York. It reported the highest annual growth of 46.41% in CRE loans to $809.9 million. CRE lending is the second-largest composition in the bank's lending portfolio, SNL said, after commercial and industrial lending.