Trepp Bank Portfolio Loan Benchmark Report: Construction Delinquencies Increase for Second Consecutive Quarter

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Trepp, a leading provider of information, analytics, and solutions to the structured finance, commercial real estate (CRE), and banking markets has released its quarterly report of bank portfolio loan performance in commercial real estate, multifamily, and construction. The fourth quarter 2019 results show that delinquencies on construction loans have increased for the second consecutive quarter and are now tied for the highest level seen since the recession.

The low delinquency rate seen across this set of bank loans reflects the state of the market prior to the COVID-19 outbreak. Trepp will be tracking how the economic effects of the pandemic impact the delinquency rate in the future.

Trepp, a leading provider of information, analytics, and solutions to the structured finance, commercial real estate (CRE), and banking markets has released its quarterly report of bank portfolio loan performance in commercial real estate, multifamily, and construction.

The fourth quarter 2019 results show that delinquencies on construction loans have increased for the second consecutive quarter and are now tied for the highest level seen since the recession. It is important to note that the 4Q2019 data does not reflect the impact of COVID-19 which isn’t expected to have a material influence on loan performance until 2Q2020.

The Trepp bank loan performance benchmark report is derived from the Trepp Anonymized Loan Level Repository (T-ALLR) and provides risk rating, delinquency rates, and other performance metrics on a portfolio of more than 34.5K bank loans that have a current outstanding balance of $172B. The full T-ALLR CRE portfolio (active and matured loans) contains more than 91K bank loans with a total outstanding balance of $485B.

While there is some expected volatility in the period-over-period origination debt yield distribution, the average debt yield has remained consistent for the past 7 years for income-producing CRE. Yields decreased slightly in Q4 after 4 consecutive quarters of increases.

Debt yield on new origination CRE loans is currently in the 10.5% range and has been steady for the past six quarters, after dropping from its peak of 12% in 2014. Multifamily debt yield is trending slightly lower than income-producing CRE, with a reading of 8.56% in Q4 2019. In early 2013, it was nearly 10%.

"The low delinquency rate seen across this set of bank loans reflects the state of the market prior to the COVID-19 outbreak," according to Russell Hughes, vice president who manages Trepp's data consortia initiatives. "We will be tracking how the economic effects of the pandemic impact the delinquency rate in the future," Hughes said.

Overall delinquency rates are near historic lows, with the serious delinquency rate as of Q4 2019 reading .02%. The only metric that runs counter to this trend is the 30-89 days delinquent rate for construction which has ticked up for two consecutive quarters and now sits at 0.60%, tied for the highest level seen post-financial crisis. While not at a level high enough to cause concern, we will continue to watch this more closely in the coming quarters.

Income-producing CRE is the largest segment with $88B in active loans, representing 50% of all T-ALLR loans and a 90+ delinquency rate of 0.04%. Multifamily loans, which represent nearly a third of the loan population, had a 90+ delinquency rate of 0.01%.

For more information on T-ALLR, email press@trepp.com or visit http://www.Trepp.com. If you are interested in receiving upcoming results for Q1 2020, contact Alex Karavousanos at 212.754.1010.

About T-ALLR
The T-ALLR Quarterly Benchmark Report analyzes Bank Portfolio loan performance across a number of data points including delinquency, CRE property type distribution, average loan size, interest rate spread, balance-by county, maturity year, and origination quarter and year. The report, which is generated from Trepp’s managed bank loan data consortium, captures portfolio CRE and commercial and industrial (C&I) loan data from participating commercial banks. The T-ALLR data is anonymized and aggregated to provide insights into trends and pockets of risk while protecting the security of the consortia participants.

About Trepp
Trepp, founded in 1979, is the leading provider of information, analytics, and technology to the structured finance, commercial real estate and banking markets. Trepp provides primary and secondary market participants with the web-based tools and insight they need to increase their operational efficiencies, information transparency, and investment performance. From its offices in New York, San Francisco, and London, Trepp serves its clients with products and services to support trading, research, risk management, surveillance, and portfolio management. Trepp is wholly owned by Daily Mail and General Trust (DMGT). For more information, visit http://www.Trepp.com

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Russell Hughes
Trepp
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