Page 34

CRE Finance World, Summer 2013

Failed banks still capture their share of attention. The systemic relevance of these institutions has diminished over the last two years. The tally of banks on the FDIC’s deliberately opaque watch list remains well above normal levels, but those 650 or so problem institutions collectively account for just 1.5% of assets in the banking system. In markets dominated by institutional investors, the failure of 51 banks nationally in 2012 proved immaterial to the direct availability of credit in support of large commercial real estate transactions. Only one failed bank had more than $1 billion in assets; not one was headquartered in New York. Stability and Commercial Real Estate Lending The default rate across commercial real estate and multifamily loans held by banks fell to 2.6% at the end of 2012, the lowest level in almost four years, and is projected to fall below 2% by the end of 2013. These statistics mask that distress remains highly concentrated in a subset of banks. For banks with at least $10 million in multifamily loans, the median default rate is 1.9%. Reflecting the distribution’s long tail, the mean is 4.7%. The same skew is observable for commercial property loans, where most banks have seen default and loss rates drop off sharply, in part because their legacy pools have been diluted as they have returned slowly to lending. Table 1 Bank Default Rates Over the Current Cycle Defaults include loans 90+ days delinquent and loans in non-accrual status. CRE Finance World Summer 2013 32 Figure 4 Default Rate for Bank Commercial and Multifamilty Mortgages Source: FDIC, Bank Call Reports, Chandan The numbers show the system is more stable, but the challenge remains that many banks outside top tier markets are not well positioned to assume the regulatory costs and credit risks associated with property lending. The banking system’s commercial real estate balance sheet is growing, but not as quickly as our industry’s broader maturity schedule. As demand for financing has picked up amongst well-qualified borrowers, net lending activity has increased in kind. But progress on this front is necessarily plodding. Across owner-occupied and income-producing assets, net lending has increased by less than 3% from the market nadir. State of the Banks


CRE Finance World, Summer 2013
To see the actual publication please follow the link above