The latest quarterly report from the Federal Deposit Insurance Corp. underscores mounting pressure in the commercial real estate sector, signaling potential headwinds for the industry. While the overall past-due and nonaccrual (PDNA) rate across all FDIC-insured institutions stood at 1.59% of total loans—still below the pre-pandemic average of 1.94%—the numbers within CRE portfolios tell a more concerning story.
CRE loan portfolios saw their PDNA rate climb to 1.49% in the first quarter of 2025, marking the highest level since late 2014. Multifamily loans, in particular, experienced the sharpest increase, with PDNAs rising by 88 basis points over the past year to reach 1.47%. Despite this deterioration in loan performance, overall loan growth remains sluggish, with the total and lease balances increasing just 0.5% from the previous quarter. Notably, multifamily CRE loans were a key driver of the limited growth.
Breaking down the outstanding volumes, construction and development loans totaled $478.3 billion, nonfarm nonresidential ones reached $1.85 trillion and multifamily stood at $638.9 billion. The percentage of loans past due by 30 to 89 days was relatively low across categories—0.34% for nonfarm nonresidential, 0.48% for construction and development and 0.42% for multifamily. However, the share of noncurrent loans (those 90 days or more past due or in nonaccrual status) was more elevated: 0.81% for construction and development, 1.36% for nonfarm nonresidential, and 1.05% for multifamily.
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Charge-offs, while still modest, reflect some stress in the system. Year-to-date net charge-off rates were 0.07% for construction and development loans, 0.21% for nonfarm nonresidential and 0.1% for multifamily. Real estate owned by banks—often a sign of foreclosures—stood at $541.7 million for construction and development, $2.15 billion for nonfarm nonresidential, and $160.6 million for multifamily.
Despite these challenges, there were a few bright spots. Nonfarm nonresidential loans grew by 1.2% year-over-year, with a 1.4% increase quarter-over-quarter and a 5.6% rise, or $31.5 billion, year-over-year. Moreover, unrealized losses on securities—a major factor in several high-profile bank failures in 2023—declined to $43.9 billion in the first quarter, down 12.4% from the previous quarter and 18.8% from 12 months earlier. Both held-to-maturity and available-for-sale securities saw quarter-over-quarter declines in unrealized losses.
Concerns about bank stability persist, though the number of financial institution failures remains limited. Only one community bank failed in the first quarter and the total number of FDIC-insured institutions fell by 24 to 4,022, primarily due to mergers, consolidations, and a handful of banks transitioning between community and noncommunity status.
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