Report: Default Rate on Commercial Real Estate Loans at 3.1% -- Smaller Banks Troubled

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The Lending Circle examines a recently released report showing the default rate on commercial real estate loans at 3.1%. It is actually the increase in lending that is behind the decline in the default rate, and not working out of a larger number of distressed loans. Net lending is increasing, but which asset type is attracting the most lending today?

The Lending Circle, a Division of Sunovis Financial

While the largest banks may also hold the largest absolute volume of non-performing multifamily and commercial loans, relatively smaller regional and community banks face some of the most significant challenges in managing distress.

Sam Chandan, president and chief economist with Chandan Economics, said that bank’s net lending to commercial real estate increased by close to $50 billion in the second quarter. He pointed out, however, that almost three-quarters of that amount went to the apartment sector.

It is actually the increase in lending that is behind the decline in the default rate, and not the working out of a larger number of distressed loans. Because banks are starting to lend more as each quarter passes, legacy loans represent a smaller share of the banking system’s aggregate balance sheet, explains Chandan.

While the largest banks may also hold the largest absolute volume of non-performing multifamily and commercial loans, relatively smaller regional and community banks face some of the most significant challenges in managing distress. The portfolios of these institutions are more heavily weighted to the secondary and tertiary markets, where pricing has been slower to recover.

What about refinancing? Refinancing remains difficult, even for properties with stable cash flow, because of an absence of lenders seeking to expand commercial real estate balance sheets - especially in secondary and tertiary markets. The Lending Circle, however, finds lenders and sources for both new financing and refinancing today. Between conventional lenders who are healthy and ready to lend, and alternative sources, the Lending Circle (a division of Sunovis Financial) offers a new way to get loans done.

About The Lending Circle
The Lending Circle, a division of Sunovis Financial, help borrowers find financing nationwide through our Lending Circle, pure and simple. The company motto is “The Lending Circle - The New Way to Get Loans Done Today.”

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Kathy Heshelow
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