Page 55

CRE Finance World, Summer 2014

Banks Show New Appetite for Risk A publication of Summer issue 2014 sponsored by CRE Finance World Summer 2014 53 he context of bank commercial real estate lending has shifted dramatically. Having disposed the vast majority of troubled assets, banks are now moving to build up loan portfolios, which are growing again after years of decline. Across all lines of business, 2013 was the most profitable year on record for banks. Net interest margins held near their record lows. But return on assets has rebounded strongly. By the fourth quarter, net loan losses and net charge-offs to total loans declined to their lowest level in six years. Table 1 Bank Return on Assets Source: FDIC, Bank Call Reports Table 2 Bank Net Interest Margin Source: FDIC, Bank Call Reports Heading into 2014, only a small minority of institutions were grappling with existential threats from legacy property and construction loans. Unlike the CMBS market, with its oft-cited waves of maturities, most pre- crisis real estate loans have been wiped clean from bank balance sheets. In surveys and data alike, smaller regional and community banks immediate challenge is now the management of competition and their peers’ greater appetite for risk-taking in lending standards. Banks’ re-engagement pushed net commercial real estate lending to its highest level on record in the fourth quarter. In keeping with recent trends, the rise in mortgage debt outstanding is increasingly broad-based in terms of geographic and assets type and quality diversification. Preliminary data for the first quarter of 2014 show more banks lending on commercial and multifamily properties in secondary markets and for non-core and relatively smaller assets. Reengagement by regional and community banks, as well as credit unions, is enhancing liquidity at the periphery of the real estate market. By the numbers, net lending during the fourth quarter increased across banks’ commercial, multifamily, and construction loan books of business. Default rates are down, as are residual troubled debt restructurings and other real estate owned. T Sam Chandan PhD Associated Faculty The Wharton School President Chandan Economics “A far cry from the early recovery, borrowers with the right assets are now more likely to encounter a saturated debt market.”


CRE Finance World, Summer 2014
To see the actual publication please follow the link above