Trepp LLC

04/15/2021 | News release | Distributed by Public on 04/15/2021 10:40

Despite Beginnings of Recovery, Q4 Bank CRE Loan Data Shows Elevated Distress

The fourth quarter of 2020 was the precursor to an economic recovery that will continue into the next several years. When looking at the commercial real estate (CRE) market at large, it is important to dig into the increased level of distress as the extraordinary circumstances of 2020 ended with an election, wider-spread access to vaccines, and increases in economic relief.

Using data from the Trepp Anonymized Loan Level Repository (T-ALLR), we reviewed the general health of the CRE universe through the high-level lens of bank repository loans.

Growing Distress in the Market

An analysis of T-ALLR data shows that the balance of delinquent or non-current loans has continued to rise, with the lodging sector seeing the largest increase in the balance of delinquency loans among the commonly-tracked CRE property types during Q4 2020. The lodging sector saw its balance of delinquent loans increase to $1.64 billion, up from just below $500 million in Q3 2020.

The total outstanding delinquent balance rose to $4.67 billion in Q4 2020 from $3.02 billion in Q3 2020 due to an increase in the number of delinquent loans backed by retail, lodging, and office properties.

While distress percentages among bank loans are still lower than that of the commercial mortgage-backed securities (CMBS) universe, the number of loans that are delinquent increased for the fourth quarter in a row. Roughly 1.28% of all T-ALLR loans were delinquent at the end of Q4 2020, a 20-basis point rise from Q3 2020. The number of non-current loans also rose 14 basis points from Q3 2020 to 0.94%.

When broken out by property type, delinquencies are concentrated in lodging and retail, with delinquency rates in Q4 2020 coming in at 11.6% and 6.1%, respectively, for those two property sectors.

Rising Origination Volume: Sign of What's to Come

With market volatility settling down and market players ramping up lending activity, the volume of bank-backed CRE loan originations rose in Q4 2020 after dropping to less than half of its volume the year prior in Q3 2020. In the fourth quarter, more than $6.4 billion in loans were originated, the highest amount since Q1 2020, and a $1.7 billion increase from the quarter prior.

Continued rises in origination volume point the CRE environment in a more positive position, and as investor confidence returns to the market, it is likely we will continue to see a trend in bank loans like that in the CMBS universe, where loans that are delinquent or with the special servicer have begun to cure.

Background: Trepp's Anonymized Loan Level Repository (T-ALLR)bank loan data consortia captures detailed loan characteristics, activity, and performance on all CRE and commercial and industrial (C&I) loans held on the balance sheet of participating banks.

The information provided is based on information generally available to the public from sources believed to be reliable.