We’ve had an opportunity to go through most of the bank data released over Thanksgiving week. The 309 (bank mergers and acquisitions are reducing the numbers of reporting institutions) New England Based banks are reporting an increase in multifamily, commercial, and construction loan problems and REO balances.
At distressedpro.com we calculate an institution’s real estate distress by including 90 day late loans, non-accrual loans, and REO. We don’t include 30-day late loans. Multifamily, commercial, and construction problems increased for New England banks again this quarter.
While 90-day-lates eased considerably non-accrual soared while lenders sold or wrote down a modest amount of multifamily REO. Overall distressed multifamily balances increased by 18% up to $180,259,000 from $148,525,000.
Commercial real estate is the elephant in the room of economic recovery. What impact the distressed commercial real estate market will have on the overall recovery or on the institutions holding the debt remains to be seen. One thing that is for certain is that problems are mounting. All three columns rose this quarter for an aggregated total of 10%.
It’s important to point out that the amount or commercial REO available “on the street” today is but a fraction of what is to come. With only about $90Million in commercial REO today there is more than 10X that in late and non-accrual loans. Even with the FDIC easing commercial real estate workout rules, anecdotal evidence suggests that at some point many of these properties are going to reach the block and they will not have a successful workout. Expect to see a flood of commercial REO over the next 12 months as options run out for many banks and borrowers.
Construction problems may be easing just as commercial real estate distress accelerates. For the most part this is reflective of the fact that construction loans are usually short term and now two years into the recession most of the problems are at least evident to the lenders and developers involved. This doesn’t change the fact, however, that nearly a three-quarters of a billion dollars in construction loans are in non accrual, much of which has been there for now several quarters. New England banks have about a billion in construction problems to deal with at this point. Much of it still in developer’s control.
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