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CRE Finance World, Summer 2014

Bank New Lending Trends The balance of commercial mortgages held by banks increased to $1.1 trillion in the fourth quarter, its highest level on record, up $17 billion from the prior quarter and $36 billion from a year earlier. Across commercial and multifamily mortgages, net lending has increased by nearly $65 billion over the last year. Higher lending volumes have been an important contributor to lower default rates, which reflect the dilution of legacy pre-crisis loans as well as write-downs and troubled debt restructurings. Table 7 Commercial and Multifamily Loans Held on Bank Balance Sheets; In Trillions Source: FDIC, Bank Call Reports, Chandan Table 8 Bank Exposure to Commercial and Multifamily Real Estate Q4 2013 Source: FDIC, Call Reports, Chandan CRE Finance World Summer 2014 56 Bank Construction Financing Small residential properties account for just over 20% of bank construction lending. Net lending on all other projects, including multifamily and commercial real estate, has increased for three consecutive quarters, by $5.4 billion. Loan-to-cost ratios have trended only slightly higher but understate banks’ exposure because of rising construction costs. Table 9 Construction and Development Loans Held on Bank Balance Sheets; In Billions Source: FDIC, Bank Call Reports, Chandan Bank Real Estate Owned Distress investors might do better in the maturing CMBS loan market. As of the fourth quarter, commercial and multifamily other real estate-owned (REO) has fallen to $7.7 billion, a little more than half its peak level in 2010. Whether through write-downs or modifications, the bulk of moderate and high quality properties have come off the collective balance sheet. Exceptionally high recovery rates on REO sales reflect that better quality investments were jettisoned early. Little of what remains holds institutional appeal. Banks Show New Appetite for Risk


CRE Finance World, Summer 2014
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