Banks' CRE REO by the Numbers

As of March 31, there was just over $10 billion in non-residential commercial real estate† in bank real estate owned (REO) in the United States. For investors who have raised capital targeting distress, that pool of assets represents a potential treasure trove, particularly as banks and the FDIC accelerate disposition activity. Needless to say, not all of the assets warrant investors’ consideration; some sifting will be required to identify properties that meet investment criteria for cash flow and value accretion.

Even as intermediated distress increasingly finds its way into the marketplace, many investors’ search costs will remain high.  CRE REO is exceptionally well distributed across the banking landscape. Across all commercial and savings institutions, the average CRE REO balance is just $1.5 million. Even after dropping the large number of institutions that have no exposure to commercial real estate, the average REO balance is only a few million dollars. The small number of institutions with very large balances is already leveraging established relationships in managing down those assets. Below that threshold, balances decline rapidly at individual institutions, requiring that investors exert more effort in relationship-building for every dollar of potential investment.