An increasing number of banks returned to commercial real estate lending in the fourth quarter of 2011, pushing net lending on multifamily and commercial properties higher for the first time since the first quarter of 2010, according to data from New York-based Chandan Economics.
Banks' multifamily and commercial real estate balance sheets expanded by more than $5 billion during the quarter, according to Chandan Economics, with most of the increase in commercial property loans. Of 365 institutions with $1 billion or more in net loans and leases and at least $100 million in commercial real estate loans, 197 (59.7%) increased their commercial real estate exposure during the fourth quarter.
Furthermore, Chandan Economics found that banks with lower default rates on legacy commercial property loans were more likely to have increased their net lending in the sector. Conversely, banks with higher default rates continued to draw down their exposure to commercial property. At year-end, the commercial default rate was at its lowest level since the third quarter of 2009, while the multifamily default rate – which had been higher than the commercial default rate at its peak – fell to its lowest level since the first quarter of 2009.
However, the combined balance of multifamily and commercial real estate owned (REO) property fell to $11.5 billion in the fourth quarter. Between nonperforming balances and REOs, Chandan Economics determined there was $67.6 billion in distressed multifamily and commercial real estate loans in the domestic banking system as of the fourth quarter. With the inclusion of construction loans, the total rises to over $100 billion.