Positive Data Revealed in Commercial Real Estate Lending

US banks have increased lending on commercial properties in the fourth quarter of last year. The first such increase since Q1 2010 comes on the back of falling default rates and banks successfully offloading foreclosed property...

US banks have increased lending on commercial properties in the fourth quarter of last year. The first such increase since Q1 2010 comes on the back of falling default rates and banks successfully offloading foreclosed property according to Chandan Economics the New York-based real estate researcher that reported the growth.

According to the firm commercial property loan balances totalled 1.06 trillion USD in the fourth quarter, a growth of some 3.69 billion USD on the previous quarter. This is not only the first rise in commercial real estate lending since Q1 2010, but it is also a much larger growth (balances grew by just 101.9 million USD in Q1 2010), but it also follows six consecutive quarterly declines.

Commercial property lending was hit hard by the US property crash, particularly by the crushed market for commercial mortgage backed securities, which has left lending severely constrained. Loans from the boom years are continually coming up for renewal, and with the commercial mortgage backed securities market at nowhere near the strength it was, many borrowers have difficulty refinancing.

 "We still face significant headwinds in commercial property but the latest findings are encouraging," said Sam Chandan chief economist at Chandan Economics.

It is no coincidence that the growth in lending led to reducing defaults in the commercial sector, with the default rate on commercial real estate loans falling to 3.8% of total loan volumes, from 4.8% in Q4 2010 and from 3.9% in the previous quarter. Defaults in the apartment sector fell strongest, falling to 2.5%, the lowest level since Q1 2009 when the default rate was 2.4%. Apartment loan defaults fell from 3.8% in Q4 2010 and from 2.9% in the previous quarter.

Bank holdings of repossessed commercial real estate also fell on the quarter, from 10.9 billion USD in Q3 2011 to 10.5 billion USD in Q4, however, this is still up from 10.2 billion USD in Q4 2010. Not in the apartment sector though, where holdings fell to 1.45 billion USD in Q4 2011, from 2.55 billion USD in Q3 and from 2.59 billion the previous year.

- Friday 02 March 2012

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