The level of delinquent commercial real estate loans on U.S. bank books declined in the second quarter for the first time since 2022, according to data from the Federal Deposit Insurance Corp. Nonresidential properties that specifically rely on rental income showed improvement, though there were still signs of distress.
Past-due and nonaccrual commercial real estate loans fell 0.07 of a percentage point from the prior quarter to 1.52% of total loans. The FDIC defines past-due loans as those 30 days or more past due, while loans with nonaccrual status have been in default for 90 days or more and on which payments are not expected.
The percentage of delinquent commercial real estate loans remained above the pre-pandemic average of 0.65%.
While banks reported overall quarterly decreases in delinquent loans, most of the decline — the first since 2022's third quarter — came from loans that were 30 to 89 days delinquent, as many of those loans moved into the 90-or-more-days delinquent category. The amount of loans less than 90 days delinquent fell 21% quarter to quarter and is at its lowest level in five quarters.
Looking deeper into commercial real estate debt portfolios, distress among non-owner-occupied commercial property loans remained elevated in the second quarter, driven by holdings of large institutions, according to the FDIC. Non-owner-occupied property loans are secured by nonresidential leased properties such as office, retail, hospitality and industrial buildings.
Banks with greater than $250 billion in assets reported a non-owner-occupied distressed loan rate of 4.33%, down from the recent peak of 4.99% in the third quarter of 2024.
Overall, the industry's volume of distressed non-owner-occupied loans decreased by $387.1 million, or 1.6%, from the prior quarter.