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Banks Edge Back Into Investment Property Lending

Focus Is Still on Multifamily, and on Core Markets and Borrowers
March 6, 2013
After tentatively testing the water in 2011, banks increased their overall lending for commercial real estate in 2012 with total CRE loan balances outstanding at year-end up 3% year-over-year. Investment property loans outstanding showed the biggest gain, ending 2012 up 11% from 2011. And multifamily loans outstanding were up 7% year-over-year.

Banks also continued to shrink their loan exposure in areas that caused the biggest problems during the Great Recession. Construction and development loans outstanding ended down 16% year-over-year.

Still, a great deal of disparity exists between which banks are lending again and which borrowers and markets are benefitting.


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“Larger institutions have historically been significantly under-allocated to CRE relative to the banking universe,” said Matthew Seminerio, a financial analyst for CoStar Group's Property and Portfolio Research (PPR). “The largest banks (those with more than $50 billion in assets) are down 0.4% year-over-year, while banks with $10 billion to $50 billion in assets are up 7%. Smaller institutions are down even more. Banks with $1 billion to $10 billion were down 0.3%, and those with less than $1 billion, down 4.5%.”

“However, the larger banks are better positioned from a balance sheet perspective, and thus have also been able to take more writedowns,” Seminerio said. “For example, if you remove the impact of construction loans, the more than $50 billion change is actually up 3.6%, vs. 9.6%, 1.6%, and -3.1% for the other three categories, respectively.”

Here is how CRE lending for the six largest banks fared in 2012.

  • Bank -- % Change in CRE Lending YoY (excluding construction & development)

  • PNC Bank -- 15.02%

  • JPMorgan Chase Bank -- 13.36%

  • Bank of America -- 9.32%

  • U.S. Bank -- 2.44%

  • Branch Banking and Trust Co. -- 1.56%

  • Wells Fargo Bank -- 1.45%


Pittsburgh-based PNC’s 2012 numbers include its acquisition of more than 400 branches across six Southeastern states from RBC Bank (USA) last year. This was PNC's seventh acquisition in the past eight years.

For banks in the $10 billion to $50 billion asset range, here is how the six fared that had the largest amount of CRE loans on their books at year-end.

  • Bank -- % Change in CRE Lending YoY (excluding construction & development)

  • People's United Bank -- 769.15%

  • Signature Bank -- 39.81%

  • New York Community Bank -- 6.14%

  • Synovus Bank -- 2.87%

  • First-Citizens Bank & Trust Co. - (-0.47%)

  • Zions First National Bank - (-3.93%)


The New York City metropolitan area proved a huge stomping ground for many of biggest CRE lenders.

For People’s United Bank in Bridgeport, CT, mortgage warehouse lending, asset-based lending, New York commercial real estate and equipment finance, all contributed to total loan growth of $1.4 billion during 2012, the bank said. The bank also posted a $935 million increase in total deposits in 2012 and expanded it branch acquisition activity in both the Boston and New York City MSAs.

Signature Bank posted record loan growth in 2012, including commercial and industrial, commercial real estate including multi-family and specialty finance. At year-end 2011, loans comprised 46.7% of its balance sheet and that grew to 56% at the end of 2012.

"This past year we again demonstrated our consistency, discipline and reputation as the bank of choice for New York privately owned businesses," said Scott A. Shay, chairman of Signature Bank.

CoStar also looked at the six largest bank lenders that concentrate primarily in CRE lending. More than 90% of these banks’ loans outstanding were for commercial real estate.

  • Bank -- % Change in CRE Lending YoY (excluding construction & development)

  • The Dime Svgs. Bank of Williamsburgh -- 31.08%

  • Oritani Bank -- 26.98%

  • Parkway Bank and Trust Co. - (-3.80%)

  • The National Republic Bank of Chicago - (-8.01%)

  • Intervest National Bank - (-8.12%)

  • United Central Bank - (-18.00%)


Vincent F. Palagiano, chairman and CEO of Brooklyn, NY-based Dime, said his bank’s results reflect elevated loan refinance activity. The bank also typically ranks among the top five multifamily lenders in its delineated lending market (primarily Manhattan, Brooklyn and Queens counties), and Palagiano said his expectation is that it will continue to be among the leaders again with last year’s results.

The bank also expects to record gains on property sales during both the December 2012 and March 2013 quarters. Real estate values in New York City have climbed steadily over the past 15 years, and the bank owns certain New York City properties with market values greatly exceeding their recorded book values, Dime reported.

Wash, NJ-based Oritani Bank’s primary focus is organic growth of multifamily and commercial real estate loans. However, the bank said it does not expect originations to continue at its 2012 pace in fiscal 2013.

Not all sizes of borrowers fared as well under the improving CRE lending conditions. Loans outstanding to small businesses secured by nonresidential real estate ended down 4% year-over-year. Banks had 61,650 fewer small business loans on their books at the end of 2012 than at the end of 2011. That amounted to $ 13.2 billion less in outstanding small business loan balances.

Overall, however, owner-occupied loans outstanding to large and small businesses ended up 3% year-over-year.

CRE asset quality indicators continued to improve for banks in the second quarter. As of the end of 2012, 4.2% of the banks’ total commercial real estate loans were delinquent. This was down from 6.2% at the end of 2011.

In addition, non 1- to 4-family restructured loans and leases ended down 19% year-over-year.

The amount of total delinquent CRE loans and foreclosed properties continues to fall significantly. The total amount dropped 29% year-over-year and now stands at less than $85 billion.

Banks disposed of $5.94 billion in foreclosed properties in 2012 with the largest percentage drop off coming from multifamily properties (down 31%). Banks still held more than $22 billion in foreclosed CRE assets on their books, with more than $12 billion of that being construction and development properties.

It’s All Relative


This week, the Mortgage Bankers Association released an analysis of FDIC data and found that commercial and multifamily mortgages fared better through the credit crunch and recession than any other major type of loan held by banks and thrifts.

The MBA analysis showed that commercial and multifamily mortgages had delinquency rates lower than the average delinquency rate for banks’ overall books of loans and leases and that the charge-off rates for commercial and multifamily mortgages were lower than for any other major loan type held by commercial banks and thrifts during that period.

“Commercial and multifamily mortgages were a net positive for banks and thrifts through the credit crunch and recession,” said MBA vice president of commercial real estate research Jamie Woodwell. “The amount of credit extended by banks stayed relatively constant during the recession; the delinquency rates for commercial and multifamily mortgages remained relatively subdued; and banks and thrifts saw far less in charge-offs for their commercial and multifamily mortgages than they did for other loan types.”

Among the MBA's other findings:

Over the course of the recession, the credit crunch and headlines about the lack of capital available for commercial real estate, the actual amount of commercial and multifamily mortgage debt extended and held by banks remained remarkably steady. The balance of commercial mortgages fell just 3% between the peak (2009) and trough (2011) before rising again in 2012.

By contrast, the balance of construction loans fell by 62% between 2007 and 2012; the balance of commercial and industrial loans fell by 21% between 2008 and 2010 before rising again in 2011 and 2012; and the balance of single-family loans fell by 14% between 2007 and 2012.

Across various loans and leases held by banks and thrifts, commercial and multifamily mortgages finished 2012 with 30+ day delinquency rates lower than the average for all loans and leases held by these institutions. At the end of the fourth quarter, commercial mortgages had a 30+ day delinquency rate of 3.55%, down from 4.67% at the end of 2011. Multifamily mortgages recorded a rate of 2.19%, down from 3.22% at the end of 2011.

Throughout the credit crunch and recession and into 2012, commercial and multifamily mortgages had the lowest charge-off rates of any type of loan held by commercial banks and thrifts. In 2012, banks and thrifts charged off 0.55% of their balance of commercial mortgages and 0.32% of their multifamily mortgages, compared to charge-off rates of 0.84% and 0.74% respectively in 2011.

In aggregate dollars, the charge-offs of commercial and multifamily mortgages by banks and thrifts also remained far below those of other loan types during the recession. From 2007 through 2012, banks and thrifts charged off (net) $212 billion of single-family mortgages, $205 billion of credit card loans, $95 billion of commercial and industrial loans, $85 billion of construction loans and $72 billion of other loans to individuals. By contrast, over the same period they have had to charge-off only $41 billion in commercial mortgages and $8.5 billion in multifamily mortgages.


Keep up weekly on national news, trends and property leads with the Watch List Newsletter, a weekly pdf that includes other news and leads not found on the CoStar Group web news pages. Sign up for the Watch List E-Mail Alert. A new issue is published late each Wednesday.


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