Bank-Held CRE Loans Face Headwinds Despite Origination Gains

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Trepp‘s Q2 2024 analysis of bank-held commercial real estate (CRE) loans shows a modest increase in origination rates, rising from $3.5 billion in Q1 to $3.9 billion. This uptick is attributed to higher interest rates and stricter lending standards, with caution from investors and lenders.

Despite the quarter-over-quarter rise, figures are down significantly from pre-pandemic levels: retail loans dropped 78%, office 65%, multifamily 61%, industrial 52%, and lodging 39%, resulting in an overall decline of 58%. Trepp noted that markets still face “significant headwinds.”

In terms of net charge-offs, office loans lead at 2.25%, down from 2.50% in Q1. Lodging follows at 1%, while retail is around 0.5%, multifamily at 0.1%, and industrial nearly at 0%. Rising charge-off rates for lodging are linked to low loan balances.

Delinquencies increased to 2.01% from 1.83% in Q1, with serious delinquencies rising from 1.57% to 1.75%. While retail and multifamily showed slight improvements, office delinquencies rose to 7.2%.

Occupancy rates declined across all property types. Retail occupancy dropped to 89.8% from 93% in 2019, multifamily fell to 91.9% from 96.3%, and office occupancy decreased from 89.5% to 79.9%. Notably, industrial saw the largest decline, from 94.3% to 85.2%.

Criticized loans varied by location, with San Francisco having the highest percentage at 61%. Other cities with significant criticized office loans include Washington, D.C. (53%), New York (48%), and Atlanta (43%).

 

Source:  GlobeSt.