Loss rates for US banks are at the lowest levels in the past six years on commercial real estate and construction loans, which means they are looking to increase lending activity in the sector.
According to data from financial information specialists Sageworks, net charge-offs for commercial real estate loans were 0.16 per cent of average loan balances in Q2.
At the end of 2009, net charge-offs were 0.9 percent, and 13 basis points below Q2 2013 rates.
Loss rates for construction and land development loans have dropped from 3.58 per cent of average loan balances in December 2009 to 0.24 per cent in Q2 of this year.
Sageworks analyst Regan Camp commented that in addition to falling loss rates, improving economic conditions and increased competition are helping the commercial lending category. Camp went on to say that as more banks move back into real estate lending, more options will open up for borrowers.
Commercial loans as a percentage of total loans at US banks have been on the rise since 2008. They now make up 24.68 per cent of portfolios, compared to 19.55 per cent in March of 2008.
Construction and land development loans in Q2 accounted for 5.14 per cent of the total, down from 8.88 per cent in March of 2008.
Banks are under increased regulatory pressure to screen commercial loan applicants. Lenders have been burned before and regulators want to be certain they have learned their lesson.
A recent report released by the Real Estate Research Group cautioned investors and lenders that increased demand for commercial real estate and competition for Class A properties will lead to higher prices, and in some cases the prices will overtake property values in certain sectors.
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