CRE Bank Lending Reaches $1.4T in Q3

NEW YORK CITY—Banking lending for commercial real estate transactions has reached new heights in Q3, according to Chandan Economic's Banking Lending & Default Report. Namely, it found that multifamily and commercial real estate loans held on bank balance sheets increased to $1.42 trillion during Q3 2014, up $15.5 billion from the prior quarter and up by $77.4 billion from a year earlier.

Bank lending against multifamily and commercial real estate has been rising for ten consecutive quarters and has now reached an all-time high with this latest quarter. It is 9% above the pre-financial crisis peak of $1.31 trillion.

Construction finance's recovery is one sobering note from the report: it has been rising for six consecutive quarters, but it is still down more than 60% from its pre-financial crisis peak.

For this last quarter, construction loans held on bank balance sheets increased to $230.6 billion, up $7.4 billion the second quarter of this year and by $24.6 billion from a year earlier.

Another sobering data point: the default rate on banks' multifamily and commercial real estate loans is at its lowest level since Q2 2008 but remains elevated as compared to its pre-crisis low of 0.5 percent. In Q3 it fell to 1.3%, down 10 basis points from the prior quarter and by 310 basis points from a peak default rate of 4.4% in Q3 2010.

The report also charted the shrinking pools of legacy non-performing and restructured loans.

It found that the balance of multifamily and commercial real estate loans in default declined to $18.3 billion in Q3, down $1.4 billion from the prior quarter and by $8.0 billion from a year earlier. The balance of multifamily and commercial real estate owned fell to $6.2 billion during Q3. The balance of modified multifamily and commercial loans fell to $17.4 billion, of which $6.2 billion was again in delinquency or default.