Headlines – Week of August 7, 2011
August 17, 2011
Commercial Real Estate Loans Cause 13 Banks to Fail
New market data from Trepp showed that 13 banks failed due to problem commercial real estate loans in July. This makes it the highest monthly figure since July 2010. Year-to-date, 61 banks have failed, and Trepp projects that 100 will close by 2011’s end.
According to the report, CRE loans comprised $797 million, or 77% of the total $1.03 billion in nonperforming loans at the failed banks. Construction and land loans made up $480 million or 47%, while commercial mortgages comprised $317 million or 31% of the total nonperforming pool.
The majority of the failures occurred in the Southeast, with seven total, followed by the West at four and two in the Midwest. Out of the 13 banks, three failures took place in both Florida and Colorado. Florida ranks second for bank failures overall, with nine total this year alone. But the largest failure was Integra Bank in Indiana, reporting losses of $2.2 billion in assets.
According to the report, the bulk of the distress most likely lies in the office and retail segments. Experts believe we have seen a leveling out in the retail segment with new problems on the office front.
According to Trepp’s July 2011 delinquency report, CRE loans in CMBS increase to 9.88%, the highest rate in the history of the market. This has put a damper on the mood in the CMBS market and the market more broadly.
Surge of Federal REO Properties Hitting the Markets
A recent report from the CoStar Group indicates that federal financial agencies have aggressively resumed their sale of foreclosed properties.
Through the first half of the year, the FDIC has sold $1.073 billion in foreclosed properties. This compares to $974.7 million in the first half of last year and $482.2 million in the first half of 2009.
More importantly, the amount of commercial real estate sales has jumped more than 12 times in that time frame. Just $39.8 million of FDIC property sales in 2009 consisted of commercial and multifamily properties. This year, more than half of the sales ($540.3 million) have been commercial real estate.
In addition, land sales have increased from $86.1 million in 2009 to $310.6 million this year.
While commercial sales are increasing, single-family residential sales are falling from $307.7 million in 2009 to $219 million this year.
The nation’s government sponsored enterprises are also increasing their REO property sales.
Through the first three months of the year, Fannie Mae sold 37 multifamily properties on which it had foreclosed compared to 13 in the same period last year. At the same time, the number of multifamily properties it has picked up has remained fairly consistent, 50 in the first quarter of this year and 47 a year ago.
Overall, Fannie Mae sold 62,814 properties in the first three months of this year vs. 38,095 in the same period a year earlier. Those sales have produced proceeds of $11 billion in the first quarter of this year compared to $7.7 billion the year-ago period.
Through the first three months of the year, Freddie Mac has sold 31,628 properties vs. 21,969 in the same period a year earlier. Freddie Mac did not break out its multifamily property dispositions separately but it was holding only 15 multifamily repossessed apartment properties on its books as of March 31.
According to the Dept. of Housing & Urban Development, the Federal Housing Administration (FHA) acquired 7,667 REO properties in June and sold a record 13,609 properties (breaking the record of 12,671 properties sold in May). The FHA REO inventory has declined from 69,958 at the end of the first quarter to 54,645 at the end of June.