Sunday, April 29, 2012

US banks still cutting commercial real estate exposure

Once in a while an article on commercial real estate appears that seems to point to improvements in the commercial real estate (CRE) credit conditions.
CoStar Group: - While a host of banks are still working through mounds of distressed commercial real estate assets, a number have decided the time is right to jump back in. Those banks that are lending again see lower risk owner-occupied properties and multifamily properties as preferred targets. But with lenders focusing on the same 'safe shelter' property sectors, it is creating widespread competition for the better-quality borrowers in those areas.
Is there really a thaw in US CRE credit or are banks simply rotating into a higher quality portfolio? The answer can be seen in the latest data from the Fed. It points to an ongoing and almost a linear decline in the overall CRE lending by large US banks.

Commercial real estate loans as percentage of large US banks' total bank credit
(weekly data, source: the Fed)

With CMBS maturity wall still looming, and a shaky macroeconomic backdrop, large US commercial banks are in no hurry to get back into CRE lending. Sure there are some interesting opportunities for banks, particularly in the multifamily sector that has been doing well. But as a whole, banks are rotating out of the sector at an almost constant rate since 2009.

That is why the Fed's sale of Maiden Lane III CMBS CDO portfolio had to be executed quickly - there is no reason the Fed should carry this risk on its balance sheet longer than necessary. Nationally the CRE market is still in a persistent deleveraging mode.
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