Commercial REO Climbs to $2.3B in Q4 2020, Though Figures Remain Surprisingly Stable

Commercial REO and business numbers are in and show unexpected stability.

Commercial Real Estate

2020 Q4 U.S. CRE Loans and REO
2020 Q4 U.S. CRE Loans and REO

Despite all the talk about stress in commercial real estate, and especially retail and office, REOs in this category also seem very modest. Even though big companies like SalesForce have said employees can now work from home indefinitely, some developers in prime markets like NYC continue to push ahead with new projects, where they say they hope beautiful common areas will attract people back to work.

At the beginning of the year, 1,143 banks reported they held a cumulative $2.33B in commercial REOs, up from $1.8B in Q3 2020. Behind this are far more in defaulting commercial mortgage loans, including:

  • $3.4B in 30-89 day late non-owner occupied loans
  • $9B in nonaccrual stage non-owner occupied CRE loans
  • $1.9B in 30-89 day late owner occupied loans
  • $5.8B in nonaccrual stage owner-occupied CRE loans

A new round of PPP loans for businesses in early 2021 may have helped stave off more defaults for now, though much will depend on how widespread that stimulus is.

Find out which banks have the most commercial REO inside BankProspector.

Construction

While there still seems to be a lot of talk about building new projects, distress among construction loans has been building up as well.

There were just under $1B in construction REOs at the end of the fourth quarter. There were also $1.3B in new 30-89 day late commercial development and land acquisition loans, and just over $2B in nonaccrual loans being reported by 861 banks. The one wild-card factor here may be a surge in construction material prices.

Business C&I Debt

Non-performing business C&I debt soared by almost 30% in the first six months of 2020 though it has since been declining. Local economies reopening, new rounds of personal and business stimulus funding, and low interest rates may have all helped as companies adapt to the new world of business.

While there were $6B in newly late business loans in Q4, there were only $18B in nonaccrual stage loans. These figures could well trend down even further by the end of Q1 2021.

Looking Ahead

The commercial debt market appears much healthier than you might expect, given recent events and media headlines. Some sectors are seeing metrics improve. However, there are opportunities to acquire under-performing or at-risk debt and collateral and add value through various ways, from redevelopment and repurposing to securing a new generation of tenants. How this data changes over the next quarter may depend a lot on stimulus measures, though where some industries are suffering, others are rocketing even faster.

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