The CRE industry has been monitoring bank lending — particularly delinquencies, net charge-offs, and criticized loans. While all are important, it’s worthwhile to examine originations. They seem on the mend.
Trepp looked at trends in its Trepp’s Anonymized Loan-Level Repository (T-ALLR) data set, which includes bank balance sheet loan data. That is a “diverse set of loans totaling about $195 billion sourced from multiple banks.”
Originations are improving. In the third quarter, origination volume was $4.4 billion, up from $3.9 billion in Q2 and $3.5 billion in Q1. Originations “rebounded” in 2024. Multifamily Q3 originations were up 76% year over year. Some of the factors pushing the increase were declining financing costs and pent-up demand from postponed 2023 transactions.
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That said, things are still significantly below pre-pandemic levels. Comparing different sectors to a 2019 average, multifamily was down 47%, office was off more than three-quarters (-77%), retail was off by 48%, lodging down by 54%, and industrial, off by 42%. Altogether, originations were off by 53%.
The net balance of charged-off bank CRE loans isn’t included in delinquency figures. The trend increased in Q3, largely because of the strain of office on owners and the risk profile of banks. Many landlords have struggled to meet debt service on their properties. The difference between net charge-off rates for office and other property types is stark, according to Trepp’s data. If you ignore office for a moment, lodging is an upward bound of about 1%. Industrial, multifamily, retail, and other all fall below. Office, however, is peaking at close to 3%.
When looking at delinquency rate by property type, lodging leaped up from 2020 Q3 to 2023 Q3. It’s hovering around 3%. Retail is around 2%, multifamily is a little above 1%, and industrial is a small fraction of 1%. Office is between 7% and 8%.
Criticized loans vary a lot by property type and geographical placement. For example, in Q3 2023 the rate in Atlanta was 25.5% though 41.8% in the same quarter of 2024. Los Angeles went from 22.4% to 36.6. Chicago jumped from 31.1% to 44.5%. However, San Francisco, New York, and Washington, D.C. continue to boast the largest office markets with the highest criticized loan rates.
“ These patterns in bank CRE loan origination and performance underscore how macroeconomic shifts, such as monetary policy and regional economic performance, continue to interact with fundamental changes in commercial real estate, shaping CRE loan performance across bank portfolios,” they wrote.
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