U.S. Banks Increase Commercial-Property Lending for First Time Since 2010

U.S. banks increased financing for commercial real estate in the fourth quarter for the first time in almost two years as default rates dropped and lenders shed more foreclosed properties, Chandan Economics said.

Balances on loans for properties including office buildings and shopping malls rose by $3.69 billion from the prior three months to $1.06 trillion, after falling for six consecutive quarters, the New York-based real estate researcher said in a report today. The last time such lending rose was the first three months of 2010, when balances increased by $101.9 million from the previous quarter, according to the report.

Lending has been constrained by upheaval in the market for commercial mortgage-backed securities, the financing engine that drove property deals and prices to record highs in 2007. With loans from the boom years coming due, property owners need to refinance and CMBS volume remains a fraction of what it was at the peak, according to Sam Chandan, chief economist at the firm.

“We still face significant headwinds in commercial property but the latest findings are encouraging,” Chandan said in an e-mail.

In the three months through December, the default rate on commercial real estate loans fell to 3.8 percent of total loan balances from 4.3 percent a year earlier and 3.9 percent in the third quarter. It was the lowest since 3.4 percent in the third quarter of 2009. A loan in default is 90 or more days past due or in “non-accrual status,” meaning the lender doesn’t expect to make a full recovery, according to Chandan Economics.

Apartment Buildings

The default rate on apartment-property loans fell to 2.5 percent from 3.8 percent a year earlier and 2.9 percent the prior quarter, the lowest since the first three months of 2009, when it was 2.4 percent, the researcher said. The report covers rental buildings with five or more dwelling units.

Banks reduced their holdings of repossessed commercial properties to $10.5 billion from $10.9 billion in the third quarter, according to the report. So-called real estate-owned properties were up from $10.2 billion a year earlier. Holdings of foreclosed apartment buildings fell to $1.45 billion from $2.55 billion in the third quarter and $2.59 billion a year earlier, Chandan Economics said.

To contact the reporter on this story: Hui-yong Yu in Seattle at hyu@bloomberg.net

To contact the editor responsible for this story: Daniel Taub at dtaub@bloomberg.net

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.